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The Limits of Trust in Economic Transactions - Investigations of Perfect Reputation Systems

28 Pages Posted: 12 Feb 2008  

Gary E. Bolton

Pennsylvania State University - Department of Supply Chain & Information Systems

Axel Ockenfels

University of Cologne - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 2008

Abstract

As the Internet economy has grown, so too has the need for trust. A degree of trust is a critical ingredient in virtually all economic relationships, Internet or otherwise. Every day we choose to trust plumbers, doctors, employers, employees, teachers, airlines, and others. The need for trust arises from the fact that we cannot contract on every move other's make. And what we can contract on is often prohibitively costly to enforce. The anonymity of geographically dispersed Internet traders increases contracting difficulties: You may not be able to identify your eBay seller or verify the quality of the object being sold, let alone get your money back.

Keywords: trust, reputation systems, eBay

JEL Classification: D01, L14

Suggested Citation

Bolton, Gary E. and Ockenfels, Axel, The Limits of Trust in Economic Transactions - Investigations of Perfect Reputation Systems (February 2008). CESifo Working Paper Series No. 2216. Available at SSRN: https://ssrn.com/abstract=1092394

Gary Eugene Bolton

Pennsylvania State University - Department of Supply Chain & Information Systems ( email )

Dept. of Supply Chain & Information Systems
University Park, PA 16802-3306
United States
814-865-0611 (Phone)
814-863-2381 (Fax)

Axel Ockenfels (Contact Author)

University of Cologne - Department of Economics ( email )

Albertus Magnus Platz
Cologne 50923
Germany

HOME PAGE: http://ockenfels.uni-koeln.de/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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