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Market Transparency, Adverse Selection, and Moral Hazard

Author

Listed:
  • Tobias J. Klein
  • Christian Lambertz
  • Konrad O. Stahl

Abstract

We study how an improvement in market transparency affects seller exit and continuing sellers' behavior in a market setting that involves informational asymmetries. The improvement was achieved by reducing strategic bias in buyer ratings. It led to a significant increase in buyer satisfaction with seller performance, but not to an increase in seller exit. When sellers had the choice between exiting--a reduction in adverse selection--and staying but improving behavior--a reduction in moral hazard--they preferred the latter. Increasing market transparency led to better market outcomes.

Suggested Citation

  • Tobias J. Klein & Christian Lambertz & Konrad O. Stahl, 2016. "Market Transparency, Adverse Selection, and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 124(6), pages 1677-1713.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/688875
    DOI: 10.1086/688875
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    More about this item

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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