When is Reputation Bad?

47 Pages Posted: 20 Jul 2004  

Drew Fudenberg

Harvard University - Department of Economics

J.C. Ely

Northwestern University - Department of Economics

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: May 2004

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.

Notes: A previous version of this paper can be found at: http://ssrn.com/abstract=323803

Suggested Citation

Fudenberg , Drew and Ely, J.C. and Levine, David K., When is Reputation Bad? (May 2004). Harvard Institute of Economic Research Discussion Paper No. 2035. Available at SSRN: https://ssrn.com/abstract=566822 or http://dx.doi.org/10.2139/ssrn.566822

Drew Fudenberg (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
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Jeffrey C. Ely

Northwestern University - Department of Economics ( email )

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United States
847-491-8219 (Phone)

David K. Levine

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

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United States

HOME PAGE: http://www.dklevine.com

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

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50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

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