The Interplay of Earnings, Ratings, and Penalties on Sharing Platforms: An Empirical Investigation

62 Pages Posted: 18 Jun 2020 Last revised: 16 Feb 2022

See all articles by Yuqian Xu

Yuqian Xu

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Baile Lu

National University of Defense Technology - College of Systems Engineering

Anindya Ghose

New York University (NYU) - Leonard N. Stern School of Business

Hongyan Dai

Central University of Finance and Economics

Weihua Zhou

Zhejiang University

Date Written: May 24, 2020

Abstract

On-demand delivery through sharing platforms represents a rapidly expanding segment of the global workforce. The emergence of sharing platforms enables gig workers to choose when and where to work, allowing them to do so in a flexible manner. However, such flexibility brings notorious challenges to platforms in managing the gig workforce. Thus, understanding the incentive and behavioral issues of gig workers in this new business model is inherently meaningful. This paper investigates how the incentive mechanisms of sharing platforms—earnings, ratings, and penalties—affect the working decisions of gig workers and their nuanced relationships. To achieve this goal, we utilize data from one leading on-demand delivery platform with over 50 million active consumers in China and implement a two-stage Heckman model with instrumental variables to estimate the impact of earnings, ratings, and penalties. We first show that a higher percentage of five-star ratings motivates gig workers to work more. However, interestingly, when ratings are employed together with earnings, workers with a higher percentage of five-star ratings tend to be less sensitive toward an earning increase (i.e., negative rating moderating effect). Second, we reveal that higher penalties discourage workers from working more, whereas, interestingly, workers with higher penalties tend to be more sensitive toward an increase in earnings (i.e., positive penalty moderating effect). Moreover, we observe nonlinear effects for both moderating effects; that is, the marginal effects diminish when the magnitude of ratings or penalties increases. Finally, we conduct follow-up surveys to understand the underlying mechanisms of the observed moderating effects from both psychological (i.e., intrinsic versus extrinsic motivation and self-esteem) and economic (i.e., the quality-quantity tradeoff) perspectives. The ultimate goal is to provide managerial implications to help platform managers understand how earnings, ratings, and penalties work together to affect gig workers' working decisions.

Keywords: incentives, behavior, delivery, sharing platform, gig worker, rating, penalty, earning

Suggested Citation

Xu, Yuqian and Lu, Baile and Ghose, Anindya and Dai, Hongyan and Zhou, Weihua, The Interplay of Earnings, Ratings, and Penalties on Sharing Platforms: An Empirical Investigation (May 24, 2020). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3609132 or http://dx.doi.org/10.2139/ssrn.3609132

Yuqian Xu (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Baile Lu

National University of Defense Technology - College of Systems Engineering ( email )

Hunan, 410073
China

Anindya Ghose

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Hongyan Dai

Central University of Finance and Economics ( email )

No 39. Xueyuan South Road
Haidai District
Beijing, 100081
China

Weihua Zhou

Zhejiang University ( email )

38 Zheda Road
Hangzhou, Zhejiang 310058
China

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