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Reputation vs Selection Effects in Markets With Informational Asymmetries

Author

Listed:
  • Alysandratos, Theodore

    (Heidelberg University)

  • Georganas, Sotiris

    (Royal Holloway, University of London)

  • Sutter, Matthias

    (Max Planck Institute for Research on Collective Goods)

Abstract

In markets with asymmetric information between sellers and buyers, feedback mechanisms are important to increase market efficiency and reduce the informational disadvantage of buyers. Feedback mechanisms might work because of self-selection of more trustworthy sellers into markets with such mechanisms or because of reputational concerns of sellers. In our field experiment, we can disentangle self-selection from reputation effects. Based on 476 taxi rides with four different types of taxis, we can show strong reputation effects on the prices and service quality of drivers, while there is practically no evidence of a self-selection effect. We discuss policy implications of our findings.

Suggested Citation

  • Alysandratos, Theodore & Georganas, Sotiris & Sutter, Matthias, 2022. "Reputation vs Selection Effects in Markets With Informational Asymmetries," IZA Discussion Papers 15683, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp15683
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    References listed on IDEAS

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    1. Balafoutas, Loukas & Kerschbamer, Rudolf, 2020. "Credence goods in the literature: What the past fifteen years have taught us about fraud, incentives, and the role of institutions," Journal of Behavioral and Experimental Finance, Elsevier, vol. 26(C).
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    More about this item

    Keywords

    information asymmetries; reputation mechanisms; selection effects; credence goods; field experiment;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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