Journal
MANAGEMENT SCIENCE
Volume 50, Issue 11, Pages 1587-1602Publisher
INST OPERATIONS RESEARCH MANAGEMENT SCIENCES
DOI: 10.1287/mnsc.1030.0199
Keywords
trust; reputation; reciprocity; electronic markets
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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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