Trust and Reputation in Social Exchange. From Maghreb Merchants to Electronic Markets

Trading partners have to solve a twofold trust problem. The quality of goods exchanged may be less than agreed upon and, in most cases, exchange is sequential, i.e. there is a time lag between A’s investment and B’s expected effort to return the investment. To mitigate cheating, various types of institutional regulations have emerged throughout history. Especially, social institutions that give access to information on actors’ past behavior are powerful ‘inventions’ to ensure trust and cooperative behavior. In the digital age, internet market platforms provide information on traders’ reputation which essentially contributes to uphold cooperation and efficient market transactions. Statistical analysis of more than 350’000 eBay transactions give new insights on the underlying mechanisms of reputation systems. These systems are based on human motivation and have to overcome the “second-order freerider problem”. It is argued that social norms of reciprocity play a key role in solving the freerider problem thereby sustaining the functioning of cooperative markets.