Effectiveness of Reputation in Contracting for Customized Production: Evidence from Online Labor Markets

This study examines the effects of reputation in the nascent but rapidly growing online labor markets. In these markets, contract winners (vendors) provide clients with customized products such as computer software, business plans, and artistic designs. The products are used primarily for business purposes and require time for production after project-specific contracts are awarded. These characteristics render it unclear whether online reputation will have similar effects as in online retailing, where finished and standardized products are sold for consumption. We analyze field transaction data from a major online labor market. The analyses using matched contract samples and vendor panels consistently show that despite the governing power provided by contracts as well as the litigation and arbitration options, vendors’ online reputation can still be influential on clients. Vendors who have no reputation ratings are less likely to be chosen, and those with higher ratings are more likely to win subsequent ...

[1]  A. Andreasen,et al.  Market Learning of New Residents , 1968 .

[2]  Manohar U. Kalwani,et al.  Long-Term Manufacturer-Supplier Relationships: Do They Pay off for Supplier Firms? , 1995 .

[3]  Erik Brynjolfsson,et al.  Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers , 2003, Manag. Sci..

[4]  Mohammad S. Rahman,et al.  Technology Usage and Online Sales: An Empirical Study , 2010, Manag. Sci..

[5]  Canice Prendergast,et al.  The Tenuous Trade‐off between Risk and Incentives , 2000, Journal of Political Economy.

[6]  Luís M. B. Cabral,et al.  The Dynamics of Seller Reputation: Evidence from Ebay , 2006 .

[7]  Eric Johnson,et al.  Dynamic Experiments for Estimating Preferences: An Adaptive Method of Eliciting Time and Risk Parameters , 2012, Manag. Sci..

[8]  George A. Akerlof.  The Market for “Lemons”: Quality Uncertainty and the Market Mechanism , 1970 .

[9]  A. Barabasi,et al.  Evolution of the social network of scientific collaborations , 2001, cond-mat/0104162.

[10]  Joshua D. Angrist,et al.  Estimating the Labor Market Impact of Voluntary Military Service Using Social Security Data on Military Applicants , 1998 .

[11]  Chrysanthos Dellarocas,et al.  The Digitization of Word-of-Mouth: Promise and Challenges of Online Feedback Mechanisms , 2003, Manag. Sci..

[12]  M. McPherson,et al.  Birds of a Feather: Homophily in Social Networks , 2001 .

[13]  Thomas A. DiPrete,et al.  Cumulative Advantage as a Mechanism for Inequality: A Review of Theoretical and Empirical Developments , 2006 .

[14]  Paul H. Schultz,et al.  Do the individuals closest to internet firms believe they are overvalued , 2001 .

[15]  Amanda Pallais.  Ineffiient Hiring in Entry-Level Labor Markets , 2012 .

[16]  Hsihui Chang,et al.  CEOs'/CFOs' Swearing by the Numbers: Does It Impact Share Price of the Firm? , 2006 .

[17]  Detmar W. Straub,et al.  IT Outsourcing Success: A Psychological Contract Perspective , 2004, Inf. Syst. Res..

[18]  Ming Fan,et al.  Design and Analysis of Contracts for Software Outsourcing , 2010, Inf. Syst. Res..

[19]  D. Watts.  The “New” Science of Networks , 2004 .

[20]  Monic Sun,et al.  How Does the Variance of Product Ratings Matter? , 2010, Manag. Sci..

[21]  Mark S. Granovetter.  Economic Action and Social Structure: The Problem of Embeddedness , 1985, American Journal of Sociology.

[22]  Gary E. Bolton,et al.  How Effective are Online Reputation Mechanisms? An Experimental Study , 2004, Manag. Sci..

[23]  Canice Prendergast,et al.  What Trade-off of Risk and Incentives? , 2000 .

[24]  F. Maxwell Harper,et al.  Social Comparisons and Contributions to Online Communities: A Field Experiment on MovieLens , 2010, Computational Social Systems and the Internet.

[25]  Kathleen M. Eisenhardt,et al.  Control: Organizational and Economic Approaches , 1985 .

[26]  Frøystein Gjesdal,et al.  Information and Incentives: The Agency Information Problem , 1982 .

[27]  A. Shaked,et al.  Relaxing price competition through product differentiation , 1982 .

[28]  Yong Liu,et al.  Does a Firm's Product-Recall Strategy Affect Its Financial Value? An Examination of Strategic Alternatives during Product-Harm Crises , 2009 .

[29]  Gary L. Frazier,et al.  Outcome-Based and Behavior-Based Coordination Efforts in Channel Relationships , 1996 .

[30]  John J. Horton,et al.  Research Note - Are Online Labor Markets Spot Markets for Tasks? A Field Experiment on the Behavioral Response to Wage Cuts , 2016, Inf. Syst. Res..

[31]  Yong Liu,et al.  Social Learning in Networks of Friends versus Strangers , 2014, Mark. Sci..

[32]  Henry C. Lucas,et al.  Are Foreign IT Workers Cheaper? U.S. Visa Policies and Compensation of Information Technology Professionals , 2010, Manag. Sci..

[33]  Rui R. Zhao.  All-or-Nothing Monitoring , 2008 .

[34]  Frances X. Frei,et al.  Cost Structure, Customer Profitability, and Retention Implications of Self-Service Distribution Channels: Evidence from Customer Behavior in an Online Banking Channel , 2010, Manag. Sci..

[35]  Christopher T. Stanton,et al.  Landing the First Job: The Value of Intermediaries in Online Hiring , 2014 .

[36]  Paul Resnick,et al.  The value of reputation on eBay: A controlled experiment , 2002 .

[37]  David H. Hsu.  Venture Capitalists and Cooperative Start-Up Commercialization Strategy , 2004, Manag. Sci..

[38]  Peter J. Lane,et al.  CEO incentives, innovation, and performance in technology‐intensive firms: a reconciliation of outcome and behavior‐based incentive schemes , 2006 .

[39]  Jan B. Heide,et al.  Interfirm Monitoring, Social Contracts, and Relationship Outcomes , 2007 .

[40]  David G. Rand,et al.  The online laboratory: conducting experiments in a real labor market , 2010, ArXiv.

[41]  H. Wolf,et al.  Intranational Home Bias in Trade , 2000, Review of Economics and Statistics.

[42]  P. Danaher,et al.  A Comparison of Online and Offline Consumer Brand Loyalty , 2003 .

[43]  Douglas W. Diamond.  Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt , 1991, Journal of Political Economy.

[44]  Kenneth J. Reynolds,et al.  The efficiency of incomplete contracts: an empirical analysis of air force engine procurement , 1993 .

[45]  Mayuram S. Krishnan,et al.  Contracts in Offshore Software Development: An Empirical Analysis , 2003, Manag. Sci..

[46]  S. Viswanathan,et al.  Home Bias in Online Investments: An Empirical Study of an Online Crowdfunding Market , 2014 .

[47]  R. Banker,et al.  Importance of Measures of Past Performance: Empirical Evidence on Quality of e-Service Providers* , 2008 .

[48]  M. Bergen,et al.  Agency Relationships in Marketing: A Review of the Implications and Applications of Agency and Related Theories , 1992 .

[49]  Pradeep Chintagunta,et al.  The Effects of Online User Reviews on Movie Box Office Performance: Accounting for Sequential Rollout and Aggregation Across Local Markets , 2010, Mark. Sci..

[50]  R. Merton.  The Matthew Effect in Science , 1968, Science.