TR135: The Impact of Rating Systems on Subcontracting Decisions: A Transaction Cost Analysis

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Abstract/Contents

Abstract: This article investigates how different types of rating mechanisms can affect transaction costs in business-to-business electronic commerce. In consumer electronic marketplaces, where the asset-specificity of the transactions is generally low, simple unweighted rating mechanisms have been shown to increase trust and therefore also decrease the transactions costs associated with opportunistic behavior. However, we argue that if a reputation mechanism is to decrease the transaction costs for highly asset specific transactions, it is necessary that the rating mechanism account for the relationship between the user and the rater. To empirically validate this hypothesis, we created a prototype credibility-weighted rating tool that incorporates a methodology to calculate a weighted rating based on source credibility theory. In an experiment, industry practitioners evaluated bids from service providers using the credibility-weighted rating tool, as well as a standard unweighted tool. For transactions with low asset-specificity, the experiment showed that both types of tools influence the risk premium added to the bids. For highly asset specific transactions, on the other hand, the credibility-weighted ratings significantly influenced the added risk premium, while there was no evidence that the simple average ratings provided by the unweighted tool affected decision-making behavior.

Type of resource	text
Date created	February 2003

Subject	CIFE
Subject	Center for Integrated Facility Engineering
Subject	Stanford University
Subject	Bidding
Subject	E-Commerce
Subject	Electronic Commerce
Subject	Rating System
Subject	Transaction Costs
Subject	Trust
Genre	Technical report

Location	https://purl.stanford.edu/ws543qp7893

Use and reproduction: User agrees that, where applicable, content will not be used to identify or to otherwise infringe the privacy or confidentiality rights of individuals. Content distributed via the Stanford Digital Repository may be subject to additional license and use restrictions applied by the depositor.

Preferred Citation: Ekström, Martin A. and Björnsson, Hans C. and Kunz, John and Levitt, Raymond E. and Nass, Clifford I.. (2003). TR135: The Impact of Rating Systems on Subcontracting Decisions: A Transaction Cost Analysis. Stanford Digital Repository. Available at: http://purl.stanford.edu/ws543qp7893

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