Abstract Asymmetric information and virtuality of electronic commerce make buyers and sellers distrust each other, and lead to the transaction boycott. After analyzing the operation mechanism of the third payment through moral hazard model, adverse selection model and signaling model, the result shows that the independent third party payment, which works in electronic commerce as a credit medium, due to its safety and stability can substitute for commercial credit in electronic commerce, which is risky and unstable, and decrease moral hazard behavior and adverse selection behavior in electronic commerce. Asymmetric information can be reduced by signaling. The transaction credit based on the third party payment settles the problem of credit between buyers and sellers in electronic commerce and promotes the continuous and fast development of electronic commerce.
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Received: 10 October 2008
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Corresponding Authors:
LI Yu-lin
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