Adverse Selection and Moral Hazard in Anonymous Markets

Konrad Stahl, Tobias Klein and Christian Lambertz

No 9501, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Anonymous markets; Adverse selection; Moral hazard; Reputation building mechanisms (search for similar items in EconPapers)
JEL-codes: D83 L15 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-com and nep-cta
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Citations: View citations in EconPapers (2)

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