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Market Transparency, Adverse Selection, and Moral Hazard

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

Abstract

We study the effects of improvements in market transparency on eBay on seller exit and continuing sellers’ behavior. An improvement in market transparency by reducing strategic bias in buyer ratings led to a significant increase in buyer valuation especially of sellers rated poorly prior to the change, but not to an increase in seller exit. When sellers had the choice between exiting—a reduction in adverse selection—and improved behavior—a reduction in moral hazard—, they preferred the latter because of lower cost. Increasing market transparency improves on market outcomes.

Suggested Citation

  • Tobias J. Klein & Christian Lambertz & Konrad O. Stahl, 2013. "Market Transparency, Adverse Selection, and Moral Hazard," CESifo Working Paper Series 4552, CESifo.
  • Handle: RePEc:ces:ceswps:_4552
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    Cited by:

    1. Rroshi, Daniela & Weichselbaumer, Michael, 2021. "What is in a price? Evidence on quality signaling for experience goods," Department of Economics Working Paper Series 311, WU Vienna University of Economics and Business.
    2. Gary E. Bolton & David J. Kusterer & Johannes Mans, 2015. "Inflated reputations: Uncertainty, leniency & moral wiggle room in trader feedback systems," Cologne Graduate School Working Paper Series 06-04, Cologne Graduate School in Management, Economics and Social Sciences, revised 29 Jul 2016.
    3. Jorge Mejia & Shawn Mankad & Anandasivam Gopal, 2019. "A for Effort? Using the Crowd to Identify Moral Hazard in New York City Restaurant Hygiene Inspections," Information Systems Research, INFORMS, vol. 30(4), pages 1363-1386, December.
    4. Simon Martin & Sandro Shelegia, 2019. "Underpromise and Overdeliver? - Online Product Reviews and Firm Pricing," Working Papers 1123, Barcelona Graduate School of Economics.
    5. Judith A. Chevalier & Yaniv Dover & Dina MayzlinDina Mayzlin, 2018. "Channels of Impact: User Reviews When Quality Is Dynamic and Managers Respond," Marketing Science, INFORMS, vol. 37(5), pages 688-709, September.
    6. Franz Hackl & Rudolf Winter-Ebmer, 2020. "Customer reactions to a webshop’s service quality," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(4), pages 699-731, November.
    7. Keser, Claudia & Späth, Maximilian, 2020. "The value of bad ratings: An experiment on the impact of distortions in reputation systems," Center for European, Governance and Economic Development Research Discussion Papers 389, University of Goettingen, Department of Economics.
    8. Belleflamme, Paul & Omrani, Nessrine & Peitz, Martin, 2015. "The economics of crowdfunding platforms," Information Economics and Policy, Elsevier, vol. 33(C), pages 11-28.
    9. Erica Myers & Steven L. Puller & Jeremy D. West, 2019. "Effects of Mandatory Energy Efficiency Disclosure in Housing Markets," NBER Working Papers 26436, National Bureau of Economic Research, Inc.
    10. Cai, Hongbin & Jin, Ginger Zhe & Liu, Chong & Zhou, Li-an, 2014. "Seller reputation: From word-of-mouth to centralized feedback," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 51-65.
    11. Casalin, Fabrizio & Dia, Enzo, 2019. "Information and reputation mechanisms in auctions of remanufactured goods," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 185-212.
    12. Peitz, Martin & Schwalbe, Ulrich, 2016. "Zwischen Sozialromantik und Neoliberalismus: Zur Ökonomie der Sharing-Economy," ZEW Discussion Papers 16-033, ZEW - Leibniz Centre for European Economic Research.
    13. Judith A. Chevalier & Yaniv Dover & Dina MayzlinDina Mayzlin, 2018. "Channels of Impact: User Reviews When Quality Is Dynamic and Managers Respond," Marketing Science, INFORMS, vol. 37(5), pages 688-709, September.
    14. Schwalbe Ulrich & Peitz Martin, 2016. "Kollaboratives Wirtschaften oder Turbokapitalismus?: Zur Ökonomie der Sharing economy," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(3), pages 232-252, September.
    15. Jolivet, Grégory & Jullien, Bruno & Postel-Vinay, Fabien, 2016. "Reputation and prices on the e-market: Evidence from a major French platform," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 59-75.
    16. Paul Belleflamme & Martin Peitz, 2018. "Inside the Engine Room of Digital Platforms: Reviews, Ratings, and Recommendations," Working Papers halshs-01714549, HAL.
    17. Yan Chen & Peter Cramton & John A. List & Axel Ockenfels, 2020. "Market Design, Human Behavior, and Management," NBER Working Papers 26873, National Bureau of Economic Research, Inc.
    18. Grégory Jolivet & Bruno Jullien & Fabien Postel Vinay, 2014. "Reputation and Pricing on the e-Market: Evidence from a Major French Platform," Sciences Po publications info:hdl:2441/4firg7dmo68, Sciences Po.
    19. Michelangelo Rossi, 2019. "How Does Competition Affect Reputation Concerns? Theory and Evidence from Airbnb," CESifo Working Paper Series 7972, CESifo.
    20. Imke Reimers & Benjamin R. Shiller, 2018. "Proprietary Data, Competition, and Consumer Effort: An Application to Telematics in Auto Insurance," Working Papers 119, Brandeis University, Department of Economics and International Businesss School.
    21. Gary E. Bolton & David J. Kusterer & Johannes Mans, 2019. "Inflated Reputations: Uncertainty, Leniency, and Moral Wiggle Room in Trader Feedback Systems," Management Science, INFORMS, vol. 65(11), pages 5371-5391, November.

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    More about this item

    Keywords

    anonymous markets; adverse selection; moral hazard; reputation building mechanisms; market transparency; market design;
    All these keywords.

    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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