Does Information Really 'Unravel'? Understanding Factors That Motivate Sellers to Seek Third-Party Certifications in an Online Labor Market

Abstract:     
Despite the abundance of studies on consequences of certification, there is little empirical research on what motivates sellers to attempt certifications in the first place. One of the most intriguing theoretical predictions is the “information unraveling” proposition, which predicts a “domino- effect” in sellers’ certification-seeking behavior when a certification opportunity arises. To test this proposition, and to further identify factors that motivate sellers to seek certifications, we exploit two unique natural experiments and detailed transaction data from a large online labor market. The first natural experiment was the introduction of certifications into the market, with a fee; and the second occurred when certification exams were made free. We derive and test hypotheses on factors that motivate sellers to seek certifications, including word-of-mouth, repeat customers, cost of certification, and informational cascading. We also find that, contrary to theoretical predictions, certification status negatively impacts some sellers’ ability to obtain contracts. These findings have important managerial as well as academic implications.

Number of Pages in PDF File: 32

Keywords: third-party certification, quality disclosure, information asymmetry, signaling, information unraveling, cascading, online labor markets, online outsourcing

JEL Classification: L15, L86, J01

working papers series