The Dynamics of Trust and Trustworthiness on EBay. AnEvolutionary Analysis of Buyer Insurance and Seller Reputation

Applying an evolutionary framework, we investigate how a reputation mechanism and abuyer insurance (as used on Internet market platforms such as eBay) interact to promote trustworthinessand trust. Our analysis suggests that the costs involved in giving reliable feedbackdetermine the gains from trade that can be obtained in equilibrium. Buyer insurance, on theother hand, can affect the trading dynamics and equilibrium selection. We find that, underreasonable conditions, buyer insurance crowds out trust and trustworthiness.