The Dynamics of Trust and Trustworthiness on EBay. An Evolutionary Analysis of Buyer Insurance and Seller Reputation

Friederike Mengel, Axel Ockenfels and Werner Güth ()

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: Applying an evolutionary framework, we investigate how a reputation mechanism and a buyer insurance (as used on Internet market platforms such as eBay) interact to promote trustworthiness and trust. Our analysis suggests that the costs involved in giving reliable feedback determine the gains from trade that can be obtained in equilibrium. Buyer insurance, on the other hand, can affect the trading dynamics and equilibrium selection. We find that, under reasonable conditions, buyer insurance crowds out trust and trustworthiness.

New Economics Papers: this item is included in nep-bec, nep-evo, nep-exp and nep-ias
Date: 2006-01
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