The reputation trap
Econometrica, 2021, Vol. 89, No. 6, pp. 2659-2678
LEVINE, David K., The reputation trap, Econometrica, 2021, Vol. 89, No. 6, pp. 2659-2678 - https://hdl.handle.net/1814/74230
Retrieved from Cadmus, EUI Research Repository
Few want to do business with a partner who has a bad reputation. Consequently, once a bad reputation is established, it can be difficult to get rid of. This leads on the one hand to the intuitive idea that a good reputation is easy to lose and hard to gain. On the other hand, it can lead to a strong form of history dependence in which a single beneficial or adverse event can cast a shadow over a very long period of time. It gives rise to a reputational trap where an agent rationally chooses not to invest in a good reputation because the chances others will find out is too low. Nevertheless, the same agent with a good reputation will make every effort to maintain it. Here, a simple reputational model is constructed and the conditions for there to be a unique equilibrium that constitutes a reputation trap are characterized.
Published online: 11 November 2021
Cadmus permanent link: https://hdl.handle.net/1814/74230
Full-text via DOI: 10.3982/ECTA17891
ISSN: 0012-9682; 468-0262
Publisher: Econometric Society
Sponsorship and Funder information:
This article was published Open Access with the support from the EUI Library through the CRUI - Wiley Transformative Agreement (2020-2023)
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