Mercatus Center, Boardroom
February 26, 2004, 07:00 PM to 07:00 PM
This thesis describes the importance and evolution of trust and reputation in markets with an empirical analysis of Internet markets. The cooperation required for markets to function efficiently is discussed using empirical examples of various Internet markets, most notably, eBay. Using Akerlof's "lemons" model as a point of reference, the author demonstrates both the proclivity for individuals to act cooperatively in markets--in stark contrast to conventional economic theory--and the robust nature of markets at eliciting cooperation when simple trust networks fail. Contrary to Akerlof's assertion that asymmetric information leads to market failure, the dynamic nature of markets elicits cooperation and credible commitments.