The Fragmentation of Reputation

34 Pages Posted: 4 Dec 2007

See all articles by Gautam Bose

Gautam Bose

UNSW Australia Business School, School of Economics

Date Written: August 2007

Abstract

This paper investigates the use of reputation in an economy where principals hire agents for two different kinds of tasks, in which the agents have differing aptitudes. Principal-agent matches are remade every period, but a principal can acquire some information on the past behavior of her current agent. This allows consideration of two different reputation mechanisms - one in which an agent's past record of defections makes no reference to the kind of task, and another in which information about past defections is available separately for each task. The two kinds of reputation can be interpreted as personal honor and performance record (e.g. credit history) respectively. I first characterize the equilibria under the two mechanisms. I then assume that the economy is in equilibrium under one mechanism when the other becomes available. I find that it may be incentive-compatible for individual agents to use the new mechanism, thus dislodging the existing equilibrium, even when the change ultimately turns out to be efficiency reducing.

Keywords: Reputation, alternate reputation mechanisms, endogenous change

JEL Classification: C73, D82, L14

Suggested Citation

Bose, Gautam, The Fragmentation of Reputation (August 2007). Available at SSRN: https://ssrn.com/abstract=1052501 or http://dx.doi.org/10.2139/ssrn.1052501

Gautam Bose (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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