Market Transparency, Adverse Selection, and Moral Hazard

Klein, Tobias J.; Lambertz, Christian and Stahl, Konrad O. (September 2013): Market Transparency, Adverse Selection, and Moral Hazard. SFB/TR 15 Discussion Paper No. 426

Abstract

We study the effects of improvements in market transparency on eBay on seller exit and continuing sellers’ behavior. An improvement in market transparency by reducing strategic bias in buyer ratings led to a significant increase in buyer valuation especially of sellers rated poorly prior to the change, but not to an increase in seller exit. When sellers had the choice between exiting—a reduction in adverse selection—and improved behavior—a reduction in moral hazard—, they preferred the latter because of lower cost. Increasing market transparency improves on market outcomes.

• Item Type: Paper
• Form of publication: Preprint
• Keywords: Anonymous markets, adverse selection, moral hazard, reputation building mechanisms, market transparency, market design.
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > C6 - Kommunikations- und Transporttechnologien, Industrie- und Regionalstruktur
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D47, D83, L15
• Language: English