Peer Learning, Enforcement, and Reputation

44 Pages Posted: 27 Dec 2021 Last revised: 26 Jul 2023

See all articles by Yi Chen

Yi Chen

Cornell University

Kai Du

Pennsylvania State University

Phillip C. Stocken

Dartmouth College - Tuck School of Business

Zhe Wang

Pennsylvania State University - Department of Finance

Date Written: May 2, 2022

Abstract

We consider a two-period collective experimentation model featuring self-interested agents that test a sequentially-rational principal’s enforcement propensity through their misconduct and a principal that disciplines them to build a reputation for strict enforcement. We find that a transparent enforcement regime yields more misconduct than an opaque enforcement regime because enforcement externalities, which heighten agent misconduct, dominate information externalities, which weaken agent misconduct. We also find a principal with a longer decision horizon may induce higher agent misconduct. Our results apply to various institutional settings, including relations between headquarters and divisions, common owners and portfolio firms, and regulators and firms.

Keywords: Experimentation; Peer Learning; Reputation; Enforcement Externality; Enforcement Transparency

JEL Classification: D82, D83, G18, M41, M48

Suggested Citation

Chen, Yi and Du, Kai and Stocken, Phillip C. and Wang, Zhe, Peer Learning, Enforcement, and Reputation (May 2, 2022). Available at SSRN: https://ssrn.com/abstract=3992146 or http://dx.doi.org/10.2139/ssrn.3992146

Yi Chen

Cornell University ( email )

Ithaca, NY 14853
United States

Kai Du

Pennsylvania State University ( email )

University Park, PA 16802
United States

Phillip C. Stocken

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States
603-646-2843 (Phone)

Zhe Wang (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
208
Abstract Views
2,161
Rank
290,940
PlumX Metrics