Adverse selection and moral hazard in anonymous markets


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


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URL: https://ub-madoc.bib.uni-mannheim.de/34342
URN: urn:nbn:de:bsz:180-madoc-343424
Document Type: Working paper
Year of publication: 2013
The title of a journal, publication series: ZEW Discussion Papers
Volume: 13-050
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: D83 , L15,
Keywords (English): Anonymous markets , adverse selection , moral hazard , reputation building
Abstract: We study the effects of improvements in eBay’s rating mechanism on seller exit and continuing sellers’ behavior. Following a large sample of sellers over time, we exploit the fact that the rating mechanism was changed to reduce strategic bias in buyer rating. That improvement did not lead to increased exit of poorly rated sellers. Yet, buyer valuation of the staying sellers—especially the poorly rated ones—improved significantly. By our preferred interpretation, the latter effect results from increased seller effort; also, when sellers have the choice between exiting (a reduction in adverse selection) and improved behavior (a reduction in moral hazard), then they prefer the latter because of lower cost.

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Klein, Tobias J. ; Lambertz, Christian ; Stahl, Konrad (2013) Adverse selection and moral hazard in anonymous markets. Open Access ZEW Discussion Papers Mannheim 13-050 [Working paper]
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