2004 | OriginalPaper | Chapter
Firm reputation with hidden information
Author : Steven Tadelis
Published in: Assets, Beliefs, and Equilibria in Economic Dynamics
Publisher: Springer Berlin Heidelberg
Included in: Professional Book Archive
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An adverse selection model of firm reputation is developed in which short-lived clients purchase services from firms operated by overlapping generations of agents. A firm’s only asset is its name, or reputation, and trade of names is not observed by clients. As a result, names are traded in all equilibria regardless of the economy’s horizon The general equilibrium analysis links the value of a name to the market for services. This causes a non-monotonicity that precludes higher types from sorting themselves through the market for names, and leads to “sensible” dynamics: reputations, and name prices, increase after success and decrease after failure.