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How Valuable Is a Good Reputation? A Sample Selection Model of Internet Auctions

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  • Jeffrey A. Livingston

    (Bentley College)

Abstract

On the online auction site eBay, by convention, sellers do not ship goods to winning bidders until after they have received payment, so there is an opportunity for sellers to take advantage of bidders' trust. Realizing this, the designers of eBay created a system that relies on self-enforcement using reputation. Several recent studies have found that bidders give little or no reward to sellers who have better reputations. I show that in fact, sellers are strongly rewarded for the first few reports that they have behaved honestly, but marginal returns to additional reports are severely decreasing. 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Jeffrey A. Livingston, 2005. "How Valuable Is a Good Reputation? A Sample Selection Model of Internet Auctions," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 453-465, August.
  • Handle: RePEc:tpr:restat:v:87:y:2005:i:3:p:453-465
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