Understanding and Mitigating Uncertainty in Online Environments: A Principal-Agent Perspective

MIS Quarterly, 31, 1, 105-136

49 Pages Posted: 18 Jan 2014

See all articles by Paul A. Pavlou

Paul A. Pavlou

Temple University - Department of Management Information Systems; Temple University - Department of Strategic Management

Huigang Liang

Florida Atlantic University - College of Business

Yajiong Xue

University of Rhode Island - College of Business Administration

Date Written: January 2006

Abstract

Despite a decade since the inception of B2C e-commerce, the uncertainty of the online environment still makes many consumers reluctant to engage in online exchange relationships. Even if uncertainty has been widely touted as the primary barrier to online transactions, the literature has viewed uncertainty as a “background” mediator with insufficient conceptualization and measurement. To better understand the nature of uncertainty and mitigate its potentially harmful effects on B2C e-commerce adoption (especially for important purchases), this study draws upon and extends the principal-agent perspective to identify and propose a set of four antecedents of perceived uncertainty in online buyer-seller relationships - perceived information asymmetry, fears of seller opportunism, information privacy concerns, and information security concerns - which are drawn from the agency problems of adverse selection (hidden information) and moral hazard (hidden action).

To mitigate uncertainty in online exchange relationships, this study integrates the principal-agent perspective with information systems, marketing, and sociological theories to propose a set of four mitigating factors - trust, website informativeness, product diagnosticity, and social presence - that enable online transactions by overcoming the problems of hidden information and hidden action through the logic of signals and incentives.

The proposed structural model is empirically tested with longitudinal data from 521 consumers for two products (prescription drugs and books) that differ on their level of purchase importance. The results support our model, delineating the process by which buyers engage in online exchange relationships by mitigating uncertainty. Interestingly, the proposed model is validated for two distinct targets, a specific website and a class of websites.

Implications for understanding and facilitating online exchange relationships for different types of purchases, mitigating uncertainty perceptions, and extending the principal-agent perspective are discussed.

Keywords: uncertainty, agency theory, adverse selection, hidden information, moral hazard, hidden action, fears of seller opportunism, information asymmetry, information privacy, information security, trust, website informativeness, product diagnosticity, social presence, book purchasing, online prescription

Suggested Citation

Pavlou, Paul A. and Liang, Huigang and Xue, Yajiong, Understanding and Mitigating Uncertainty in Online Environments: A Principal-Agent Perspective (January 2006). MIS Quarterly, 31, 1, 105-136. Available at SSRN: https://ssrn.com/abstract=2380164

Paul A. Pavlou (Contact Author)

Temple University - Department of Management Information Systems ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

Temple University - Department of Strategic Management ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

Huigang Liang

Florida Atlantic University - College of Business ( email )

University Tower
220 SE 2 Avenue
Fort Lauderdale, FL 33301
United States

Yajiong Xue

University of Rhode Island - College of Business Administration

Kingston, RI 02881
United States

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