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Market Transparency, Adverse Selection, and Moral Hazard

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

Abstract

We study how seller exit and continuing sellers’ behavior on eBay are affected by an improvement in market transparency. 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 improving behavior—a reduction in moral hazard—, they preferred the latter because of lower cost. Increasing market transparency improved market outcomes.

Suggested Citation

  • Klein, Tobias J. & Lambertz, Christian & Stahl, Konrad, 2014. "Market Transparency, Adverse Selection, and Moral Hazard," Working Papers 14-25, University of Mannheim, Department of Economics.
  • Handle: RePEc:mnh:wpaper:37275
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    More about this item

    Keywords

    Anonymous markets ; adverse selection ; moral hazard ; reputation 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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