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Abstract

Agency problems, such as moral hazard and adverse selection, are prevalent in the public service sector, and the Chinese rural e-commerce service sector is no exception. With the focus on the top-down project ‘information and communication technology for development’ implemented in the underdeveloped areas in China, the rural e-commerce service center (RESC) operation mechanism was analyzed in this study. Based on the tension between RESC operators, local governments, and e-commerce service providers that was reported in a field survey, this study further employs the principal-agent framework to analyze the problems of asymmetric information. Based on this analysis, solutions are suggested that can remedy the moral hazard issues in rural e-commerce service delivery, including developing a service evaluation system, promoting the usage of ICTs, and enhancing rural social capital. To address the problem of adverse selection, the RESC recruitment process should be improved. Moreover, by dividing the potential RESC employees into native villagers and e-commerce entrepreneurs, the optimal subsidy schemes can be designed for both types of applicants according to their ability and sensitivity to incentive.

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