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

32 Pages Posted: 24 Oct 2012 Last revised: 3 Dec 2012

Paulo Goes

University of Arizona - Department of Management Information Systems

Mingfeng Lin

University of Arizona - Eller College of Management

Date Written: November 1, 2012

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.

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

JEL Classification: L15, L86, J01

Suggested Citation

Goes, Paulo and Lin, Mingfeng, Does Information Really 'Unravel'? Understanding Factors That Motivate Sellers to Seek Third-Party Certifications in an Online Labor Market (November 1, 2012). NET Institute Working Paper No. 12-02. Available at SSRN: https://ssrn.com/abstract=2163760 or http://dx.doi.org/10.2139/ssrn.2163760

Paulo Goes

University of Arizona - Department of Management Information Systems ( email )

AZ
United States

Mingfeng Lin (Contact Author)

University of Arizona - Eller College of Management ( email )

Tucson, AZ 85721
United States

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