Perceived Risk and Escrow Adoption: An Economic Analysis in Online Consumer-to-Consumer Auction Markets

Online escrow is an emerging trust service in consumer-to-consumer auction markets for protecting online traders from Internet fraud. Although the process of online escrow services (OES) ensures its effectiveness i blocking Internet frauds, its adoption rate is still surprisingly low relative to the increasing Internet fraud (Fraud.org 2001; Wolverton 2001). This paper intends to study the effect of tradersí perceived risk (Kahneman and Tversky 1979; Weber and Milliman 1999), defined as perceived risk rate (PRR), on the adoption of online escrow service. The research applies economic modeling and computer simulation approaches, following the literature and methodology in Hu et al.(2001)