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Re: transaction costs in anonymous markets
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On Mon, 16 Oct 1995, Wei Dai wrote:
. . .
> Two main components of transaction cost in an anonymous market will be
> the cost to maintain anonymity and the cost to evaluate reputations.
. . .
> The second big part of transaction cost in an anonymous market is
> reputation evaluation. Of course, normal, everyday transactions require
> reputations to be evaluated. However, more effort and cost will be
> expanded on these evaluations in an anonymous market because the effects
> of misevaluations will be much more damaging. Reputations must be
> constantly reevaluated, as pseodonyms are easily transfered. Since no
> good theories of reputation currently exist, these evaluations are
> difficult to automate. Perhaps theoretical advances can make these
> evaluations easier and/or more accurate. However there does not appear
> to be any major research effort in this area.
This is only true if you assume everyone will do their own
reputation evaluation. This is a third-party insurer problem,
really. Either a "Lloyds of London" or a "Good Housekeeping"
model would do the trick.
S a n d y