How many of the Yelp reviews you read would you guess are forged by the companies being reviewed? MarketWatch reports that 20% of Yelp reviews are fraudulent, typically written by freelance writers from the Philippines, Bangladesh and Eastern Europe who receive between $1-10 for each review. New York attorney general Eric Schneiderman eventually stepped in with “Operation Clear Turf,” a year-long investigation that is culminating in an agreement with 19 companies to stop their practice of forging reviews. The companies will also have to pay more than $350,000 in fines for astroturfing and false advertising.

Although Yelp clearly states in its rules that paid reviews are forbidden, the problem has only gotten worse — fake reviews only made up 5% of Yelp’s content in 2006, according to a study by Harvard assistant professor Michael Luca.

“Our findings suggest that unethical decision making is a function of incentives, rather than of unethical businesses,” Luca writes. “Organizations are more likely to game the system when they are facing increased competition and when they have poor or less established reputations. For managers, policymakers, and even end-users investigating review fraud, this sheds light on the situations where reviews are most likely to be fraudulent. More generally, this casts light on the economic incentives that lead organizations to violate ethical norms.”

UPDATE: A Yelp spokesperson contacted BGR via email with the following statement regarding MarketWatch’s report on Michael Luca’s study:

“The study confirms what Yelp has long known: businesses will try to submit phony reviews about their business or competitors. That’s why Yelp uses sophisticated software to filter out suspicious and less trustworthy reviews. As a result, Yelp only publishes about 75% of reviews submitted; the remaining 25% — including those highlighted in the study — are relegated to our filter and not recommended. So, while there may be some people who are still surprised to learn that businesses try to mislead consumers with phony reviews, the good news is that Yelp has been on the case since the very beginning. The fact that more than 100 million consumers rely on Yelp each month because they continue to find the reviews useful and credible is another useful finding.”