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Firm Reputation with Hidden Information

Steven Tadelis
University of California, Berkeley - Haas School of Business

January 2002

Abstract:
An adverse selection model of firm reputation is developed in which short-lived clients purchase services from firms operated by overlapping generations of agents. A firm's only asset is its name, or reputation, and trade of names is not observed by clients. As a result, names are traded in all equilibria regardless of the economy's horizon. The general equilibrium analysis links the value of a name to the market for services. This causes a non-monotonicity that precludes higher types from sorting themselves through the market for names, and leads to "sensible" dynamics: reputations, and name prices, increase after a success and decrease after failure.

Keywords: Reputation as an asset, trade of names, overlapping generations

JEL Classifications: C70, D80, L14

Working Paper Series

Date posted: January 02, 2001 ; Last revised: January 21, 2002

Suggested Citation

Tadelis, Steven, Firm Reputation with Hidden Information (January 2002). Available at SSRN: http://ssrn.com/abstract=254562 or doi:10.2139/ssrn.254562

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Contact Information

Steven Tadelis (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building
Berkeley, CA 94720
United States