Identity Management and Tradable Reputation

Forthcoming in MIS Quarterly, June 2018

41 Pages Posted: 16 May 2015 Last revised: 31 Jan 2018

See all articles by Hong Xu

Hong Xu

Hong Kong University of Science & Technology (HKUST)

Jianqing Chen

The University of Texas at Dallas, Jindal School of Management

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management

Date Written: 2018

Abstract

Online reputation trading is a new phenomenon facilitated by the prosperity of e-commerce and social networks. Whether reputations will be reliable when people can purchase rather than build their reputations is a natural concern and also a challenge to online marketplaces. In the present study, we examine a reputation market in an infinitely repeated game setting, where agents sell products and trade their online reputations. Agents exert effort to provide products, and their reputations are updated based on consumer feedback. High type agents have a lower cost of effort than low types. In addition to reputation system, we consider products that are randomly audited, and agents do not receive payment for products that fail the audit. Our analysis depicts a separating equilibrium: high-type agents can be sorted out from low-type agents by their reputations, which contrasts with the results in Tadelis (2002). In a separating equilibrium, reputations become a perfect indicator of agents' types, effort levels, and quality of the products. We demonstrate the key role of auditing in separating different types of agents, and reveal the substitution effect between auditing frequency and harshness of reputation systems. We also study the design of the reputation system and the audit mechanism in order to achieve different equilibria in the reputation market. By proposing online reputations as an asset, our paper generates implications for establishing reliable online environments and promoting effective online interactions.

Keywords: reputation, online community, audit, identity management, electronic market

Suggested Citation

Xu, Hong and Chen, Jianqing and Whinston, Andrew B., Identity Management and Tradable Reputation (2018). Forthcoming in MIS Quarterly, June 2018. Available at SSRN: https://ssrn.com/abstract=2605720 or http://dx.doi.org/10.2139/ssrn.2605720

Hong Xu (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

999999

Jianqing Chen

The University of Texas at Dallas, Jindal School of Management ( email )

800 West Campbell Road
Richardson, TX 75080
United States

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-471-8879 (Phone)

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