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The Dynamics of Trust and Trustworthiness on EBay. An Evolutionary Analysis of Buyer Insurance and Seller Reputation

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  • Friederike Mengel
  • Axel Ockenfels
  • Werner Güth

Abstract

Applying an evolutionary framework, we investigate how a reputation mechanism and a buyer insurance (as used on Internet market platforms such as eBay) interact to promote trustworthiness and trust. Our analysis suggests that the costs involved in giving reliable feedback determine the gains from trade that can be obtained in equilibrium. Buyer insurance, on the other hand, can affect the trading dynamics and equilibrium selection. We find that, under reasonable conditions, buyer insurance crowds out trust and trustworthiness.

Suggested Citation

  • Friederike Mengel & Axel Ockenfels & Werner Güth, 2006. "The Dynamics of Trust and Trustworthiness on EBay. An Evolutionary Analysis of Buyer Insurance and Seller Reputation," Papers on Strategic Interaction 2006-03, Max Planck Institute of Economics, Strategic Interaction Group.
    • Handle: RePEc:esi:discus:2006-03
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    References listed on IDEAS

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