How effective are electronic reputation mechanisms? An experimental investigation

How effective are electronic reputation mechanisms? An experimental investigation

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Article ID: iaor20073478
Country: United States
Volume: 50
Issue: 11
Start Page Number: 1587
End Page Number: 1602
Publication Date: Nov 2004
Journal: Management Science
Authors: , ,
Keywords: retailing
Abstract:

Electronic reputation or ‘feedback’ mechanisms aim to mitigate the moral hazard problems associated with exchange among strangers by providing the type of information available in more traditional close-knit groups, where members are frequently involved in one another's dealings. In this paper, we compare trading in a market with online feedback (as implemented by many Internet markets) to a market without feedback, as well as to a market in which the same people interact with one another repeatedly (partners market). We find that while the feedback mechanism induces quite a substantial improvement in transaction efficiency, it also exhibits a kind of public goods problem in that, unlike in the partners market, the benefits of trust and trustworthy behavior go to the whole community and are not completely internalized. We discuss the implications of this perspective for improving feedback systems.

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