Market Transparency, Adverse Selection, and Moral Hazard

46 Pages Posted: 21 Jan 2014

See all articles by Tobias J. Klein

Tobias J. Klein

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER); IZA Institute of Labor Economics; Netspar; Tilburg Law and Economics Center (TILEC)

Christian Lambertz

University of Mannheim

Konrad O. Stahl

University of Mannheim - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: December 31, 2013

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.

Keywords: anonymous markets, adverse selection, moral hazard, reputation building mechanisms, market transparency, market design

JEL Classification: D470, D830, L150

Suggested Citation

Klein, Tobias J. and Lambertz, Christian and Stahl, Konrad O., Market Transparency, Adverse Selection, and Moral Hazard (December 31, 2013). CESifo Working Paper Series No. 4552, Available at SSRN: https://ssrn.com/abstract=2382441 or http://dx.doi.org/10.2139/ssrn.2382441

Tobias J. Klein (Contact Author)

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands

HOME PAGE: http://center.uvt.nl/staff/klein/index.html

Tilburg University - Center for Economic Research (CentER)

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Christian Lambertz

University of Mannheim ( email )

68131 Mannheim
Germany

Konrad O. Stahl

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181 1875 (Phone)
+49 621 181 1874 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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