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

Mingfeng Lin (), Yong Liu () and Siva Viswanathan ()
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Mingfeng Lin: Department of Management Information Systems, Eller College of Management, University of Arizona, Tucson, Arizona 85721
Yong Liu: Department of Marketing, Eller College of Management, University of Arizona, Tucson, Arizona 85721
Siva Viswanathan: Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742

Management Science, 2018, vol. 64, issue 1, 345-359

Abstract: 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 bids. Importantly, however, such influences depend on the contract form that is used for a particular transaction—they are significant in output-based contracts but nonsignificant in input-based contracts. Besides extending the research on online reputation to the markets of customized production, this study shows contract form as an important boundary condition for the effectiveness of reputational information. It also provides direct managerial implications for electronic commerce in general and online labor markets in particular.

Keywords: contracts; online labor market; online reputation mechanisms; business services; word of mouth; entrepreneurship (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (12)

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