So, ebay offer limited insurance for unhappy buyers and duped sellers now? How do the economics of this work? The social success of Ebay has always relied on the principle that the number of honest users will outweigh the fraudsters, so users can use the site without having much recourse if the goods fail to show up (since it would be so hard to trace a dishonest seller). However, the user of Ebay was still necessarily running a risk — even if it pays off on average, the uncertainty itself is undesirable. It's a classic case for insurance, you could say — pooling the risk among all users would remove the uncertainty and crystallise the risk as a fixed cost.

So have Ebay decided the risks are really that small that they can pool the risk themselves, with just the listing and Paypal charges to cover the costs? Listing fee is, what, 10% of the initial list or reserve price, and Paypal is only 5% or something like that, but this has to provide for their normal business costs and profit. So it's a small percentage. They have strictly capped their liability per claim and the number of claims per user too. Are they going to be tight about paying out; do they think few people will claim, or few will meet the standard of proof; or is it a bet on society's predominant honest? Clearly most Ebay users at the moment rely on that general honesty; but the old moral hazard problem could bite Ebay, not to mention people gaming the system.