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The Market for Reputations as an Incentive Mechanism

31 Pages Posted: 1 Oct 2001  

Steven Tadelis

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: September 17, 2001

Abstract

Reputational career concerns provide incentives for short lived agents, but these incentives disappear as an agent reaches retirement. This paper investigates the effects of a market for firm reputations on the life-cycle incentives of firm owners to exert effort. A dynamic general equilibrium model with moral hazard and adverse selection offers two main results. First, incentives of young and old agents are quantitatively equal, implying that incentives are "ageless" with a market for reputations. Second, good reputations cannot act as effective sorting devices: in equilibrium, more able agents cannot outbid lesser ones in the market for good reputations. Finally, welfare analysis shows that social surplus can fall if clients observe trade in firm reputations.

Keywords: Name, Reputation, Career Concerns

JEL Classification: C70, D82, L14

Suggested Citation

Tadelis, Steven, The Market for Reputations as an Incentive Mechanism (September 17, 2001). Available at SSRN: https://ssrn.com/abstract=283258 or http://dx.doi.org/10.2139/ssrn.283258

Steven Tadelis (Contact Author)

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

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

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