nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2018‒10‒29
nineteen papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. Crypto-currency: Implication for Regulatory Governance By Andy Cheng
  2. Data, measurement and initiatives for inclusive digitalization and future of work By Nofal, María B.; Coremberg, Ariel; Sartorio, Luca
  3. The Context of Service Innovation in Alibaba By Mei-Tai Chu
  4. Organizational culture and public diplomacy in the digital sphere: The case of South Korea By Jeffrey Robertson
  5. A Probative Value for Authentication Use Case Blockchain By Dominique Guégan; Christophe Hénot
  6. Life cycle assessment of cash payments By Randall Hanegraaf; Nicole Jonker; Steven Mandley; Jelle Miedema
  7. Mobile telephony in emerging markets: The importance of dual-SIM phones By Göller, Daniel; Andersson, Kjetil
  8. Financial Inclusion Under the Microscope By Sumit Agarwal; Thomas Kigabo; Camelia Minoiu; Andrea Presbitero; Andre Silva
  9. Breaking Audio Captchas for IRCTC Booking Automization By Nipun Bansal; Mukul Sachdeva; Tanisha Mittal
  10. IoT measurement and applications By OECD
  12. EU regions and the upgrading for the digital age By Antonio Vezzani; Emanuele Pugliese; Petros Gkotsis
  13. Is Uber Helping or Hurting Mass Transit? An Empirical Investigation By Yang Pan; LiangFei Qiu
  14. Internet of Things in Health Care as an Opportunity to Ensure Sustainable Development By Ewa Kwiatkowska; Ma?gorzata Skórzewska-Amberg
  15. Is Cash Dead? Using Economic Concepts To Motivate Learning and Economic Thinking By Philip Gunby; Stephen Hickson
  16. Harnessing the opportunities of inclusive technologies in a global economy By Beliz, Gustavo; Basco, Ana Inés; de Azevedo, Belisario
  17. A new frontier in digital activism: An exploration of digital feminism in Fiji By Tait Brimacombe, Romitesh Kant, Glenn Finau, Jope Tarai and Jason Titifanue
  18. Collusion and Antitrust Enforcement in Advertising-Selling Platforms By Konstantinos Charistos
  19. Substitution and Complementarity between Fixed-line and Mobile Access By Nikhil Vellodi;

  1. By: Andy Cheng (Hang Seng Management College)
    Abstract: Crypto-currency trading and Fintech innovations unlocked by blockchain have caught global regulators? attention for the past few years. Crypto-currency or digital asset management and value exchange are growing fast in the virtual market spaces. Officials in charge of oversight for the marketplace are now at a crossroads where regulators need to decide whether to isolate, to regulate, or to integrate crypto-currency into the new financial ecosystem. This study looks at the implication of the development in crypto-currency for regulators.The term ?crypto-currency? refers to digital currencies which based on cryptographic technologies or encryption algorithms to monitor the generation of units and transmission verification. For some crypto-currencies, there are upper limit on the number of units can be issued. However, crypto-currencies can also be generated without such limit now. Therefore, it can mimic the money supply dynamic in fiat monetary systems. However, in order to be a new form of money, crypto-currencies have to demonstrate the three basic functions of money. In general, crypto-currencies can function as a store of value. However, in view of limited acceptance in daily transaction, their role serves as medium of exchange is also limited for the time being. Regarding unit of account, owing to their high degree of volatility, this prevents them to be a good unit of account at the moment too.According to a study in April 2018 by the International Monetary Fund (IMF), total current global crypto-assets represent a small share of the global financial system. Meanwhile, crypto-currencies may not impose a great challenge to fiat currencies or influence the implementation of national monetary policy. However, in view of the exponential growth on crypto-asset/currency which in term may affect the overall financial stability, the growth in blockchain based currencies starts catching the eye sight of global regulators. IMF reminded that with the growth in the sector, crypto-asset may pose risks to financial stability in the future, so it requires the close monitoring by regulators. In addition, the advancement of digital currency, symbolized by the invention of Bitcoin, makes central banks now go beyond the question of how to regulate crypto-asset. All the above leads to the increasing importance in crypto-currency governance since in the context of crypto-currency, the governance is borderless and decentralized. Anyone can join, maintain and update distributed ledger, which regulators should be vigilant to this blockchain based governance.
    Keywords: Crypto-currency; Distributed Ledger Technology; Blockchain Governance
    JEL: G18
    Date: 2018–07
  2. By: Nofal, María B.; Coremberg, Ariel; Sartorio, Luca
    Abstract: As the pace of digitalization and automation accelerates globally, and more disruptive innovations in machine learning, artificial intelligence and robotics are expected, new data sources and measurement tools are needed to complement existing valuable statistics and administrative data. This is necessary to better understand the impact of technological change on the labor market and the economy and better inform policy decisions for inclusive people centered growth. In accordance with G20 Roadmap for Digitalisation (2017), points 10, 5 and 7, the authors propose to: i) track technological developments globally in a multidisciplinary and coordinated fashion; ii) develop new methods of measurement for the digital economy; iii) harmonize occupational taxonomies and develop new sources of data and indicators at the international level; iv) Build International Collaborative Platforms for Digital Skills and the Digital Transformation of SMES.
    Keywords: globalization,labor markets,employment polarization,labor share,skills,productivity,innovation,technological change,economic growth
    JEL: E01 J23 J24 J31 E25 O33 O4
    Date: 2018
  3. By: Mei-Tai Chu (La Trobe University)
    Abstract: This paper focuses on service innovation through the discovery of Chinese type service innovation in Alibaba. The purpose of service innovation is to provide an effective way to create sustainable competitive advantage for companies. By focusing on or building service strategies can help organizations overcome the barrier of maintaining growth in saturated markets and the problem caused by the effect of digitalization. Firms and industries stand to gain a lot by adopting service based innovation strategies and policy makers and various researchers are becoming increasingly intrigued by service innovations in the East especially China because they have grown exponentially in many industrial economies and are creating a new era in service innovation.Innovation is leading the change in the structure of Chinese economy and the outcomes so far are positive. Alibaba is becoming the prime example of the rise Chinese internet economy in the world. With is global sales of $300 billion dollar, Alibaba has proven itself to be a strong competitor for Amazon. In an interview with Reuters, executives said that by using Alipay, the Chinese consumers? trump card china is planning to attract American partners and enter the US market. This methodology of research includes conducting several in-depth interviews in Hong Kong, Beijing, Hangzhou and Taipei as well as employing the case study of Alibaba?s innovation by collecting public information. It aims to unveil Alibaba?s unique approaches compared to western type innovation.According to experts, it can be difficult to predict whether the Alibaba model is potentially transferrable into other countries. However, the with the rise of the internet of things and development of mobile payment systems, the research outcomes find there is a chance that there will be a new Alibaba era in a few years. The key to success for Alibaba is the fact that the Chinese market is large enough to accommodate a large ecosystem. As Chinese companies are becoming more profitable, they are more interested to invest more, involve mergers and acquisitions, and adopt modern technologies and stating to blow the wind of Chinese innovation to the western world. From the perspective of service innovation, the success of Alibaba helps capture the three aspects of their unique value propositions, profit generation and personnel creativity.
    Keywords: Service Innovation, China, Alibaba
    JEL: O31
    Date: 2018–07
  4. By: Jeffrey Robertson
    Abstract: Digital diplomacy is the latest technological advance to push change in diplomatic practice. It relates to the application of digital technologies, including information and communication technologies, software engineering and big data, and artificial intelligence, to the practice of diplomacy. Positioned in the top ranks of connectivity, internet speed, smartphone ownership, and social media usage, South Korea should be a leader in the use of digital technologies in diplomatic practice. However, South Korea is not a leader; indeed, it has been left behind. I explore digital diplomacy as a “disruptive technology†and look at criteria for organizational adaptation. I then use these criteria to assess South Korea's adaptation and draw from these the specific policy challenges facing South Korea. To conclude, I propose four core criteria to aid digital diplomacy adaptation in South Korea and other similar states.
    Keywords: digital diplomacy, diplomacy, South Korea, foreign policy, foreign ministry
    Date: 2018–10–08
  5. By: Dominique Guégan (UP1 - Université Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, Labex ReFi - UP1 - Université Panthéon-Sorbonne, University of Ca’ Foscari [Venice, Italy], IPAG BUSINESS SCHOOL - IPAG BUSINESS SCHOOL PARIS); Christophe Hénot (UP1 - Université Panthéon-Sorbonne, PRISM - Pôle de recherche interdisciplinaire en sciences du management - UP1 - Université Panthéon-Sorbonne)
    Abstract: The Fintech industry has facilitated the development of companies using blockchain technology. The use of this technology inside banking system and industry opens the route to several questions regarding the business activity, legal environment and insurance devices. In this paper, considering the creation of small companies interested to develop their business with a public blockchain, we analyse from different aspects why a company (in banking or insurance system, and industry) decides that a blockchain protocal is more legitimate than another one for the business it wants to develop looking at the legal (in case of dispute) points of view. We associate to each blockchain a probative value which permits to assure in case of dispute that a transaction has been really done. We illustrate our proposal using thirteen blockchains providing in that case a ranking between these blockchains for their use in business environment. We associate to this probative value some main characteristics of any blockchain as market capitalization and log returns volatilities that the investors need to take also into account with the new probative value for their managerial strategy.
    Keywords: volatility,Regulation,Proof of work,Mining,Attack,Blockchain,Crypto-currency,probative-value,evidential-value,Hash rate,Immutability
    Date: 2018–09
  6. By: Randall Hanegraaf; Nicole Jonker; Steven Mandley; Jelle Miedema
    Abstract: Purpose: This study quantifies the impact of the Dutch cash payment system on the environment and on climate change using a life cycle assessment (LCA). It examines both the impact of coins and of banknotes. In addition, it identifies areas within the cash payment system where the impact on the environment and on the climate can be reduced. Methods: The ReCiPe endpoint (H) impact method was used for this LCA. The cash payment system has been divided into five subsystems: the production of banknotes, the production of coins, the operation phase, the end of life of banknotes and the end of life of coins. Two functional units were used: 1) cumulative cash payments in the Netherlands in 2015 and 2) the average single cash payment in the Netherlands in 2015. Input data for all processes within each subsystem was collected through interviews and literature study. Ten key companies and authorities in the cash payment chain contributed data, i.e. the Dutch central bank, the Royal Dutch Mint, a commercial bank, a cash logistic service provider, two cash-in-transit companies, two printing works, an ATM manufacturer and a municipal waste incinerator. Results and discussion: The environmental impact of the Dutch cash payment system in 2015 was 2.35 MPt (expressed in eco points) and its global warming potential (GWP) was 17 million kg CO2 equivalents (CO2e). For an average single cash transaction the environmental impact was 637 µPt and the GWP was 4.6 g CO2e. The operation phase (e.g. energy use of ATMs, transport of banknotes and coins) (64%) and coin production phase (32%) had the largest impact on the environment, while the operation phase also had the largest impact on climate change (88%). Finally, scenario analysis shows that reductions of the environmental impact (51%) and the impact on climate change (55%) could be achieved by implementing a number of measures, namely: reducing the number of ATMs, stimulating the use of renewable energy in ATMs, introducing hybrid trucks for cash transport and matching coins with other countries in the euro area. Conclusions: This is the first study that investigates the environmental impact and GWP of the cash payment system in the Netherlands, by taking both the impact of banknotes and coins into account. The total environmental impact of cash payments in 2015 was 2.35 MPt and their GWP was 17 million kg CO2e.
    Keywords: Cash payment system; coins; banknotes; LCA; environmental impact; GWP
    JEL: E42 Q54 Q56
    Date: 2018–10
  7. By: Göller, Daniel; Andersson, Kjetil
    Abstract: A substantial share of customers in emerging markets use dual-SIM phones and subscribe to two mobile networks. A primary motive for so called multi-simming is to take advantage of cheap on-net services from both networks. In our modelling effort, we augment the seminal model of competing telephone networks á la Laffont, Rey and Tirole (1998b) by a segment of flexible price hunters that may choose to multi-sim. According to our findings, in equilibrium, the networks set a high off-net price in the linear tariffs to achieve segmentation. This induces the price hunters to multi- sim. We show that increased deployment of dual-SIM phones may induce a mixing equilibrium with high expected on-net prices. Thus, somewhat paradoxically, deployment of a technology that increases substitutability, and thereby competition, may end up raising prices.
    Keywords: Network competition,multi-sim,dual-SIM phones,price discrimination
    JEL: D43 L13 L96 D43 L13 L96
    Date: 2018
  8. By: Sumit Agarwal; Thomas Kigabo; Camelia Minoiu; Andrea Presbitero; Andre Silva
    Abstract: We examine the impact of a large-scale microcredit expansion program on access to finance and the transition of first-time borrowers from microfinance institutions to the formal banking sector. Using administrative micro-data covering the universe of loans to individuals from a developing country, we show that the program significantly increased access to credit, particularly in less developed areas. This effect is driven by the newly set-up credit cooperatives (U-SACCOs), which grant loans to previously unbanked individuals. About 10\% of first-time U-SACCO borrowers that need a second loan switch to the formal banking sector, with commercial banks cream-skimming less risky borrowers from U-SACCOs and granting them larger, cheaper, and longer-term loans. These borrowers are not riskier than similar individuals already in the formal banking sector and only initially receive smaller loans. Our results suggest that the microfinance sector, together with a well functioning credit reference bureau, help mitigate information frictions in credit markets.
    Date: 2018–09–28
  9. By: Nipun Bansal (Delhi Technological University); Mukul Sachdeva (DTU); Tanisha Mittal (DTU)
    Abstract: CAPTCHAs are computer generated tests in the form of images, audios and object recognition that world can communicate easily and computer systems cannot. Internet sites present users with captchas to set apart human users from false computer programs, often referred to as bots. Their purpose is to obstruct attackers from performing automatic registration, online polling and other such actions. IRCTC, being the website to reserve tickets for Indian railways, one of the biggest railway network, has also employed both image and audio captchas for security purposes. However, the audio captchas used on the website are not effective in distinguishing between humans and bots. Most of the visual CAPTCHAs and some audio CAPTCHAs on different websites have been cracked using various methods of machine learning and we propound an identical idea to examine the security of audio CAPTCHAs on IRCTC website. In this paper, we show that our bot is able to break the IRCTC audio captchas with a success rate of 98%, 96.04% and 80.3% using three different models. Along with breaking the captcha, another python script written by us was able to automate the process of ticket booking. Thus, combining all of it into a single package could result in a system which would login and reserve tickets only by a single click. Travel brokers can easily use such a system for easy and fast booking of tatkal tickets which would lead to commercializing this activity for deriving huge profit from needy travelers.
    Keywords: Audio Captchas, Automatic Speech Recognition, IRCTC, Security, MFCC, Deep Learning
    JEL: L86 C80 D85
    Date: 2018–07
  10. By: OECD
    Abstract: The Cancun Ministerial mandate on the Digital Economy (2016) highlighted the importance of developing Internet of Things (IoT) metrics to assess the effects of the IoT in different policy areas. Accordingly, this report reviews different definitions of IoT in view of establishing an operational definition for the CDEP work, and proposes a taxonomy for IoT measurement. The report also explores potential challenges for communication infrastructures due to the exponential growth of IoT devices through the application of connected and automated vehicles. This IoT application was chosen as the data transmission requirements of fully automated vehicles may have substantial implications for network infrastructure, and therefore may require prioritisation in terms of measurement.
    Date: 2018–10–23
    Abstract: Globally, the use of mobile phones among adults and youths, especially teenagers, in secondary school has increased dramatically in recent years. The study was a survey of the use of mobile phones on senior secondary school students in Lagos state. The descriptive survey research design was used for the study. Simple random sampling technique was used to select 450(180 male and 270 female); (301 public and 149 private) Senior Secondary School Students from 70 secondary schools across the 57 Local Government Areas (comprising the 20 original Local Government Areas and 37 Local Council Development Areas) in Lagos State. The instrument used for data collection was a self-designed 15-item questionnaire designed on five-point Likert scale with a reliability coefficient (r) of 0.85 obtained through a test-retest method. The data collected were analysed using frequency counts and simple percentages while t-test was used to test the only hypothesis stated in the study. The results showed that there were diverse operations that senior secondary school students perform on their mobile phones. These range from making voice calls, internet browsing, chatting to downloading music/movies and snapping pictures. The results also showed that majority of the students in senior secondary schools used their phones to browse social networking sites but they rarely used their mobile phones to download school work or assignment. The findings also revealed that there was no significant difference between gender and the use of mobile phones among senior secondary school students. It was recommended that some major stakeholders (parents, guardians and teachers) in education should monitor the kind of activities that their children/wards/students perform with their mobile phones. Teachers can also encourage the use of mobile phones by giving students tasking projects and/or assignment that will enhance educational attainment.
    Keywords: Mobile phone, survey, senior secondary school student, podcast, Lagos State
    JEL: I29
    Date: 2018–07
  12. By: Antonio Vezzani (European Commission – JRC); Emanuele Pugliese (European Commission - JRC); Petros Gkotsis (European Commission - JRC)
    Abstract: In this work we use patent data from the European patent office (EPO) to assess the capabilities of EU regions in developing digital technologies especially focusing on those that are more closely related to the digital transformation. More specifically, we measure ICT patents by considering those containing digital codes, as defined by the OECD. The penetration of digital technologies in the development of innovative products is instead captured by the co-occurrence of digital and non-digital codes within patent documents; we call these patents ICT-combining patents.
    Keywords: Industrial transformation, Industry, Digital technologies, ICT, Regional specialisation
    JEL: O30 O14 R10 R58
    Date: 2018–10
  13. By: Yang Pan (E. J. Ourso College of Business, Louisiana State University,Baton Rouge, LA 70803 U.S.A.); LiangFei Qiu (Warrington College of Business University of Florida Gainesville, FL 32612 U.S.A.)
    Abstract: Sharing economy reshapes the distribution of unused or underutilized asset through digital platforms to individuals who are willing to pay for the services. The new economy model has introduced dramatic impact on the traditional industries by matching the demand and supply in real time. In this paper, we examine how the entry of Uber, a ride-sharing services digital platform, influences the demand of public transportation. Significant debate has surrounded whether the new ride-sharing model siphoned riders from public transit, or made transit feasible for more riders. However, limited empirical research has been done to uncover whether Uber is helping or hurting public transportation systems. Leveraging a natural experiment setting, the entry of Uber, with a difference-in-differences approach, we find a significant drop in the number of passenger trips with bus. Further, our results suggest that the effect of Uber is not uniform – the reduction in bus passenger trips is mitigated when the proportion of old age people in a local urban area is large; the decrease is amplified when the populations of disable people, including with language difficulty, and self-employed people are large. However, the moderating effect of poverty is mixed. We discuss the implications for research and practice.
    Keywords: Uber, digital platform, sharing economy, ride-sharing services, public transportation, difference-in-differences, natural experiment
    Date: 2018–10
  14. By: Ewa Kwiatkowska (Kozminski University); Ma?gorzata Skórzewska-Amberg (Kozminski Univeristy)
    Abstract: Using science to implement new technological solutions, easily accessible and adaptable to changing needs, shapes the future. Technological progress means that the basic health care services provided thanks to the development of digital services become cheaper and available to an increasing number of recipients. Digital health which includes i.a. remote services (telemedicine) is a response to the development of civilisation. However, in order for it to be implemented according to the principles of sustainable development, apart from the processes of digitisation of health care, a normal existence of digitally excluded persons must be ensured. Therefore, the health services can not be implemented only electronically, because it could lead to discrimination of digitally excluded social groups. When implementing new services, one must at the same time make sure that parallel solutions are developed for people who can not use new technologies for objective reasons. One can not neglect development of traditional methods of treatment, because only mutual interaction and balance of traditional methods and those using new technologies allow establishing and developing a proper relationship between the patient and the doctor ? the most important one, from the point of view of health protection and respect for the patients' rights.Digital services can eliminate the need to travel to far-away healthcare centres, which reduces waiting time and makes specialised and complex services available for an increasing number of patients. However, one should ask whether such service is always synonymous with the service of direct patient contact with a doctor? A good solution seems to be the introduction of hybrid solutions that combine electronic distance contact of a patient with a specialist doctor ? in the presence of a primary care doctor who, knowing the patient and his health problems, may draw the attention of the specialist to symptoms unrecognisable by the patient.With the development of digitalisation of health care there is a need to provide emergency systems. A possible transfer of healthcare to cyberspace may cause risks which can not be ignored. Introduction of Information and Communication Technologies in many areas of life, in particular in health protection raises a number of previously unprecedented threats. It should be emphasized that complete elimination of risk is not possible, and any willingness to do so will only result in the inhibition of the implementation of modern solutions ? which is neither desirable nor consistent with the assumptions of sustainable development.
    Keywords: health care, Internet of Things, sustainable development, Information and Communication Technologies, society aging, digital exclusion
    JEL: I15 I18 Q01
    Date: 2018–07
  15. By: Philip Gunby (University of Canterbury); Stephen Hickson (University of Canterbury)
    Abstract: Simple but neglected concepts such as the velocity of circulation are ideal to open up discussions in macroeconomics classes, in this case about why the demand for money may rise or fall and about the likelihood of a cashless society. First, we review the history of the velocity of circulation. Next, we provide details of a research exercise in an undergraduate macroeconomics course. This exercise includes students searching for data on financial and monetary systems and national accounts. Data sources and links are provided for different countries. We also explain how such an exercise can be used to further Excel skills of students. Finally, we discuss our experiences from this exercise, including student feedback about the exercise from a survey we conducted.
    Keywords: Teaching Macroeconomics, Velocity of Circulation, Cashless Society, Undergraduate Research.
    JEL: A22
    Date: 2018–09–01
  16. By: Beliz, Gustavo; Basco, Ana Inés; de Azevedo, Belisario
    Abstract: In this paper the authors propose that G20 countries endorse and facilitate the creation of a T20 digital platform for "Accelerating the Jobs of the Future". In a world driven by a new wave of technological change, the platform would revalue the role of think tanks, research institutions and knowledge hubs to move the global agenda in an issue of central importance for the future of society: the creation of the jobs of the future. Building on and complementing existing experiences, the T20 platform would be a digital hub for producing knowledge, informing policies and connecting potential partners to accelerate the jobs of the future, within the context of an increasing integrated global economy. It would also contribute to the development of consensual views among the research community, allowing to discard extreme visions about the jobs of the future, dispelling both overly optimistic visions with no evidence base and unwarranted fears.
    Keywords: employment,future,digitalization,technology,industry 4.0,artificial intelligence,skills,inequality,gender gap,G20
    JEL: J01 E24 O30
    Date: 2018
  17. By: Tait Brimacombe, Romitesh Kant, Glenn Finau, Jope Tarai and Jason Titifanue
    Abstract: Social media has become a crucial feature of the Pacific islands in the 21st century, providing people with the means to demand greater accountability and transparency and offering an alternative platform through which to engage in policy processes, dialogue, and debate. Increasing social media access and use has altered the existing media and communications landscape, with implications for mainstream media reporting, censorship, and citizen voice. This paper explores this phenomenon through an examination of the digital activism practices of a group of women's rights activists in Fiji. In doing so, this paper explores how social media is being used as an online platform for information dissemination and debate, as well as the implications this is having “offline†as part of efforts to influence policymaking.
    Keywords: feminism, Fiji, online activism, social media, women's rights
    Date: 2018–10–05
  18. By: Konstantinos Charistos (Department of Economics, University of Macedonia)
    Abstract: This paper underlines the impact of indirect network externalities on the effectiveness of antitrust enforcement to deter collusion between advertising-selling platforms. Since two-sided collusion is less likely to be sustained as consumers (e.g. readers/viewers) become more ad-avoiders while the opposite is true for one-sided collusion, firms may be induced to semi-collude (collude on advertising while competing for consumers) instead of colluding on both sides. When firms semi-collude on advertising and consumers are neutral towards advertisements, the imposition of fines based on the illegal gain of the colluding side (one-sided fines) enhances cartel deterrence compared to fines based on the total illegal profits (two-sided fines).
    Keywords: Antitrust enforcement, Collusion, Media markets.
    JEL: K21 L12 L41
    Date: 2018–10
  19. By: Nikhil Vellodi (19 West 4th Street, 6th floor, New York, NY10012, US);
    Abstract: I study the impact of consumer reviews on the incentives for firms to enter and participate in the marketplace. Firms produce goods of heterogeneous, unknown quality that is gradually revealed through user-generated feedback, and face both entry and exit decisions. For each firm, the platform constructs a rating based on previous consumer feedback that provides the market with information regarding product quality. Under full transparency, consumers' equilibrium choices induces slow feedback rates for struggling firms and new entrants, inducing low entry rates as well as negative selection effects - high-quality firms exit early. This benchmark offers several theoretical predictions, some of which echo existing empirical findings, the others are novel and I test directly using data from Yelp!. I then turn to the design of such ratings systems. These platforms must balance the need to provide consumers with accurate information and high-quality experiences against the need to encourage firms to participate in the marketplace. The key insight is that optimal rating systems involve upper censorship, i.e. the exclusion of reviews from highly-firms' ratings, as a means of making the task of climbing the ratings hill less daunting, thus stimulating entry and stifling exit. Classification-JEL: L13, L43, L96
    Keywords: Product reviews, information design, firm dynamics, optimal stopping, ergodic analysis, directed search
    Date: 2018–10

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