The Contingent Complementary Benefits of Dispute Resolution and Reputation Systems: Evidence from a Service Procurement Platform
39 Pages Posted: 25 Sep 2019
Date Written: September 16, 2019
We consider the effect of introducing a dispute resolution process, alongside a pre-existing reputation system, on buyer hiring behavior and downstream project outcomes at an online service procurement platform. We formulate hypotheses related to the heterogeneous influence that a dispute resolution process will have on buyers’ consideration of service provider ratings and certifications, and how this influence will vary with the nature of the work being contracted. We further hypothesize associated increases in buyer satisfaction. We evaluate these hypotheses using proprietary data capturing projects, service providers, bids and hiring decisions around a natural experiment: the introduction of a new dispute resolution process at a major online service procurement platform. We provide evidence that the dispute resolution process led buyers to substantially reduce their consideration of service provider reputation (ratings) and certifications when making hiring decisions, but only when the work involved was such that the quality of service provider output could be evaluated objectively by a third-party arbitrator, e.g., data entry, as opposed to more subjective, creative work, like logo-design. Additionally, considering the effect on project outcomes, we demonstrate that buyers’ propensity to rate service providers positively increased significantly, for ‘objective’ work domains. These findings provide empirical evidence that dispute resolution is an effective means of mitigating reputation cold-start problems, and that they are effective at inducing greater effort on the part of service providers, but only in contexts where the outcome of a dispute can be reliably predicted by market participants.
Keywords: dispute resolution, online ratings, online service procurement platforms
JEL Classification: J01, J23, J4, M51, M55, Z22
Suggested Citation: Suggested Citation