Quantity Versus Quality: Experimenting with the Margins for Social Information

Jonathan Lafky and Alistair Wilson

No 2018-02, Working Papers from Carleton College, Department of Economics

Abstract: People share their experiences of goods and services online, through reviews, ratings and endorsements on social networks, potentially generating welfare-improving information that can help subsequent consumers make better, more informed decisions. While the economics literature has focused on questions of alignment and the intensive quality of provided information, another tension is extensive: in the absence of an incentive, many might choose not to provide information at all. We study three different incentives that encourage information transmission on the extensive margin, examining the tradeoffs between quality and quantity of information. Our findings indicate substantial efficiency gains can be made relative to no incentives, even when the incentives damage the preference alignment between those sending and receiving information. In particular, our results point to a partially aligned incentive (similar to a referral or sales commission) as robustly encouraging the provision of information while not producing substantial reductions in quality.

Date: 2018-09
Note: In Copyright
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