Working Paper: CEPR ID: DP6624
Authors: Steffen Huck; Gabriele Lnser; Jean-Robert Tyran
Abstract: Arguing that consumers are the carriers of firms? reputations, we examine the role of consumer networks for trust in markets that suffer from moral hazard. When consumers are embedded in a network, they can exchange information with their neighbours about their private experiences with different sellers. We find that such information exchange fosters firms' incentives for reputation building and, thus, enhances trust and efficiency in markets. This efficiency-enhancing effect is already achieved with a rather low level of network density.
Keywords: consumer network; information conditions; moral hazard; reputation; trust
JEL Codes: C72; C92; D40; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| network density (D85) | market performance (G14) |
| consumer networks (D85) | trust and efficiency (D61) |
| identifiable sellers (L14) | market performance (G14) |
| anonymous interaction (Y70) | market performance (G14) |
| partial network (D85) | trust rates (E43) |
| partial network (D85) | average quality (L15) |
| full network (D85) | trust and average quality (L15) |