When is Reputation Bad?

46 Pages Posted: 6 Oct 2002

See all articles by J.C. Ely

J.C. Ely

Northwestern University - Department of Economics

Drew Fudenberg

Massachusetts Institute of Technology (MIT)

David K. Levine

Washington University in St. Louis - Department of Economics; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2002

Abstract

In traditional reputation theory, reputation is good for the long-run player. In "Bad Reputation," Ely and Valimaki give an example in which reputation is unambiguously bad. This paper characterizes a more general class of games in which that insight holds, and presents some examples to illustrate when the bad reputation effect does and does not play a role. The key properties are that participation is optional for the short-run players, and that every action of the long-run player that makes the short-run players want to participate has a chance of being interpreted as a signal that the long-run player is "bad". We also broaden the set of commitment types, allowing many types, including the "Stackelberg type" used to prove positive results on reputation. Although reputation need not be bad if the probability of the Stackelberg type is too high, the relative probability of the Stackelberg type can be high when all commitment types are unlikely.

Suggested Citation

Ely, Jeffrey C. and Fudenberg, Drew and Levine, David K., When is Reputation Bad? (June 2002). Harvard Institute Research Working Paper No. 1962. Available at SSRN: https://ssrn.com/abstract=323803 or http://dx.doi.org/10.2139/ssrn.323803

Jeffrey C. Ely

Northwestern University - Department of Economics ( email )

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Drew Fudenberg (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

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David K. Levine

Washington University in St. Louis - Department of Economics ( email )

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European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

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Florence, Florence 50014
Italy

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