How Effective Are Electronic Reputation Mechanisms? An Experimental Investigation

Gary Bolton (), Elena Katok () and Axel Ockenfels

Management Science, 2004, vol. 50, issue 11, 1587-1602

Abstract: 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.

Keywords: trust; reputation; reciprocity; electronic markets (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (248)

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Working Paper: How Effective are Electronic Reputation Mechanisms? An Experimental Investigation (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:50:y:2004:i:11:p:1587-1602

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