Market Transparency, Adverse Selection, and Moral Hazard

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

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URN: urn:nbn:de:bsz:180-madoc-372754
Document Type: Working paper
Year of publication: 2014
The title of a journal, publication series: Working Paper Series
Volume: 14-25
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Mikroökonomik (Stahl K.1988-2009, Em)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Classification: JEL: D47 , D83 , L15,
Keywords (English): Anonymous markets , adverse selection , moral hazard , reputation mechanisms , market transparency , market design
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.

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