An Empirical Study of Online Software Outsourcing: Signals underDifferent Contract Regimes

We study whether and how contractual arrangements (fixed price vs.time-and-materials contracts) change the effect of reputation,certification, and language characteristics on the chances of winningoutsourcing contracts. Using a comprehensive dataset from an onlineoutsourcing marketplace, we model how buyers choose among biddingvendors, and how the effects of these variables change under differentcontract forms. Our results show that online reputation is an importantpredictor of success only for fixed-price contracts, but not significantfor times-and-materials contracts. In other words, contract forms canmitigate the typical Matthew Effect associated with online reputationsystems. Contrary to popular belief, certifications do not increase thechances of winning regardless of the contract forms. Linguistic featuresof private communications from the vendor to the buyer also affect thechances of winning, and different dimensions have different effects whencontract forms change. Our study is one of the first to study theinteraction between contract formats and different signals that vendorscan reveal to buyers in the competitive bidding process, and is also oneof the first to investigate how texts of private communications affectbuyers' contracting decisions.