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Fragility of reputation and clustering of risk-taking

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  • Ordoñez, Guillermo L.

    ()
    (Department of Economics, University of Pennsylvania)

Abstract

Reputation concerns in credit markets restrain borrowers' temptations to take excessive risk. The strength of these concerns depends on the behavior of other borrowers, rendering the reputational discipline fragile and subject to breakdowns without obvious changes in economic fundamentals. Furthermore, at an aggregate level, breakdowns are clustered among borrowers with intermediate and good reputations, magnifying otherwise small economic shocks.

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File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20130653/9503/295
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Bibliographic Info

Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 8 (2013)
Issue (Month): 3 (September)
Pages:

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Handle: RePEc:the:publsh:1207

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Web page: http://econtheory.org

Related research

Keywords: Reputation; global games; risk-taking; fragility;

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References

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  1. Guillermo Ordonez & Andrew Atkeson, 2009. "Optimal Regulation in the Presence of Reputation Concerns," 2009 Meeting Papers 830, Society for Economic Dynamics.
  2. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2007. "Dynamic Global Games of Regime Change: Learning, Multiplicity, and the Timing of Attacks," Econometrica, Econometric Society, vol. 75(3), pages 711-756, 05.
  3. repec:bla:restud:v:76:y:2009:i:1:p:395-412 is not listed on IDEAS
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  11. Guillermo Ordonez, 2008. "Essays on Learning and Macroeconomics," Levine's Working Paper Archive 122247000000002250, David K. Levine.
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  17. Radhakrishnan Gopalan & Vikram Nanda & Vijay Yerramilli, 2011. "Does Poor Performance Damage the Reputation of Financial Intermediaries? Evidence from the Loan Syndication Market," Journal of Finance, American Finance Association, vol. 66(6), pages 2083-2120, December.
  18. Flavio Toxvaerd, 2004. "Strategic Merger Waves: A Theory of Musical Chairs," Discussion Paper Series dp359, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  19. Sylvain Chassang, 2010. "Fear of Miscoordination and the Robustness of Cooperation in Dynamic Global Games With Exit," Econometrica, Econometric Society, vol. 78(3), pages 973-1006, 05.
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Citations

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Cited by:
  1. Bernardita Vial & Felipe Zurita, 2013. "Reputation-Driven Industry Dynamics," Documentos de Trabajo 436, Instituto de Economia. Pontificia Universidad Católica de Chile..
  2. Gary Gorton & Guillermo Ordonez, 2011. "Collateral Crises," IMES Discussion Paper Series 11-E-25, Institute for Monetary and Economic Studies, Bank of Japan.
  3. Guillermo Ordonez, 2013. "Sustainable Shadow Banking," NBER Working Papers 19022, National Bureau of Economic Research, Inc.
  4. Guillermo L. Ordonez, 2010. "Confidence Banking," 2010 Meeting Papers 310, Society for Economic Dynamics.

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