Events

Ms. Jingyi Cui
Ph.D. candidate in Economics
Yale University

Reputation is often important in markets for experience goods. New sellers commonly invest in reputation by offering introductory pricing or other incentives. By encouraging buyers to try new sellers, these investments generate information externalities for future buyers while diverting business from other sellers. I study reputation investment behavior by workers in the context of a large online labor platform. I show that employers value worker reputation and experience, and that new workers initially bid low wages but raise their bids after obtaining experience and public reviews. I estimate a dynamic equilibrium model where forward-looking workers bid anticipating the impact of reputation and experience on future employment outcomes. Compared to a counterfactual with bidding based only on immediate payoffs, forward-looking bidding increases the equilibrium number of reviewed workers by 52% and quadruples the number of matches on the platform. However, workers’ investments remain below the social optimum. The socially optimal platform-funded subsidy for hiring new workers raises total surplus by 22% while increasing platform profit. The subsidy level that maximizes platform profit is lower, but achieves 80% of the total surplus gain.