Multi-Party Certification on Blockchain and Its Impact in the Market for Lemons

Ingrid Bauer*, José Parra-Moyano, Karl Schmedders, Gerhard Schwabe

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Markets in which similar goods of different qualities are sold suffer from information asymmetries and their negative consequences. Dealers have established themselves, and mediate these markets through their use of quality signals. While these signals help to mitigate information asymmetries, these markets still function well below their optimum: a large share of goods sold are overpriced, and most of the benefits are reaped by intermediaries. In this paper we build on prior research that proposes the use of blockchain as an enabler for trusted, decentralized asset documentation. Applying a socio-technical lens, we describe how blockchain-enabled multi-party certification affords dealers the action potential to send signals that are more closely correlated to the unobservable quality of the underlying good (i.e., signals with a higher fit) than the signals they send today. We then both theorize and experimentally explore the market effects of the two types of signals. Using data from a laboratory market experiment with 210 participants, we find empirical evidence that multi-party certification affords dealers the action potential to send signals of significantly higher fit than those sent by intermediaries alone, leading to a reduction in information asymmetries, a more efficient allocation of goods, and an increase in market fairness.

Original languageEnglish (US)
Pages (from-to)395-425
Number of pages31
JournalJournal of Management Information Systems
Volume39
Issue number2
DOIs
StatePublished - 2022

Keywords

  • Blockchain
  • information asymmetry
  • market for lemons
  • market mechanism
  • multi-party certification
  • online signaling
  • quality certification

ASJC Scopus subject areas

  • Management Information Systems
  • Computer Science Applications
  • Management Science and Operations Research
  • Information Systems and Management

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