Journal
JOURNAL OF POLITICAL ECONOMY
Volume 124, Issue 6, Pages 1677-1713Publisher
UNIV CHICAGO PRESS
DOI: 10.1086/688875
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Funding
- Deutsche Forschungsgemeinschaft [SFB TR-15]
- Microsoft
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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.
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