Fragility of reputation and clustering of risk-taking
AbstractReputation 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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Bibliographic InfoArticle provided by Econometric Society in its journal Theoretical Economics.
Volume (Year): 8 (2013)
Issue (Month): 3 (September)
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Web page: http://econtheory.org
Reputation; global games; risk-taking; fragility;
Other versions of this item:
- Guillermo L. Ordoñez, 2009. "Fragility of reputation and clustering of risk-taking," Staff Report 431, Federal Reserve Bank of Minneapolis.
- Guillermo Ordonez, 2008. "Fragility of Reputation and Clustering in Risk Taking," 2008 Meeting Papers 441, Society for Economic Dynamics.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G01 - Financial Economics - - General - - - Financial Crises
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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