Learning Trust *

We examine the effects of different forms of feedback information on the performance of markets that suffer from moral hazard problems due to sequential exchange. As orthodox theory would predict, we find that providing buyers with information about sellers’ trading history boosts market performance. More sursprisingly, this beneficial effect of incentives for reputation building is considerably enhanced if sellers, too, can observe other sellers’ trading history. This suggests that two-sided market transparency is an important ingredient for the design of well-functioning markets that are prone to moral hazard. (JEL: C72, C91, L14.) ∗We are grateful to Arno Riedl for a very helpful discussion at the EEA meetings in Madrid. The third author acknowledges financial support from the Leverhulme Trust and the Economic and Social Research Council (UK) via ELSE. †Email addresses: Bohnet ; Harmgart ; Huck ; Tyran .