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Firm reputation with hidden information

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  • Steven Tadelis

Abstract

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. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • Steven Tadelis, 2003. "Firm reputation with hidden information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(2), pages 635-651, March.
    • Handle: RePEc:spr:joecth:v:21:y:2003:i:2:p:635-651
    DOI: 10.1007/s00199-002-0257-z
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    Citations

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    Cited by:

    1. Olivier Gergaud & Florine Livat, 2004. "Team versus individual reputations: a model of interaction and some empirical evidence," Cahiers de la Maison des Sciences Economiques bla04015, Université Panthéon-Sorbonne (Paris 1).
    2. Guillermo Ordoñez, 2013. "Reputation from nested activities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(3), pages 915-940, April.
    3. Omer Moav & Zvika Neeman, 2010. "The Quality Of Information And Incentives For Effort," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 642-660, September.
    4. Joyee Deb, 2012. "Observability and Sorting in a Market for Names," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(2), pages 301-338, June.
    5. Hakenes, Hendrik & Peitz, Martin, 2004. "Selling reputation when going out of business," Papers 04-52, Sonderforschungsbreich 504.
    6. Chen, Yong & Mak, Barry & Li, Zhou, 2013. "Quality deterioration in package tours: The interplay of asymmetric information and reputation," Tourism Management, Elsevier, vol. 38(C), pages 43-54.
    7. Prat, Nicolas & Madnick, Stuart E., 2008. "Measuring Data Believability: A Provenance Approach," Working papers 40086, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    8. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.
    9. Christopher Chambers & Paul Healy, 2012. "Updating toward the signal," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(3), pages 765-786, August.
    10. Wiseman, Thomas, 2008. "Reputation and impermanent types," Games and Economic Behavior, Elsevier, vol. 62(1), pages 190-210, January.
    11. Bendell, Bari L. & Kristal, Emma K., 2023. "Five naming strategies to help tell your organization’s story," Business Horizons, Elsevier, vol. 66(3), pages 387-404.
    12. Howard P. Marvel & Lixin Ye, 2008. "Trademark Sales, Entry, And The Value Of Reputation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 547-576, May.
    13. Wang, Tianxi, 2007. "The Reputation of an Organization and its Dynamics," Economics Discussion Papers 2954, University of Essex, Department of Economics.
    14. Heski Bar-Isaac, 2004. "Something to Prove: Reputation in teams and hiring to introduce uncertainty," Working Papers 04-07, New York University, Leonard N. Stern School of Business, Department of Economics.

    More about this item

    Keywords

    JEL Classification Numbers: D80; L14.; Keywords and Phrases: Reputation as an asset; Trade of names; Overlapping generations.;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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