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Reputation and Efficiency: Information Design

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  • Allen Vong

Abstract

A firm trades with a sequence of consumers who are unsure about the firm's competence and its effort to supply quality. I examine rating systems that sustain efficient outcomes in virtually all trades by providing consumers with information to motivate a patient-competent firm's effort. I characterize necessary and sufficient conditions for these systems to exist. I show that any such system censors the firm's track records, and explicitly construct one such system. This system reveals that the firm has produced consecutively many good outputs whenever this happens and hides all information otherwise.

Suggested Citation

  • Allen Vong, 2025. "Reputation and Efficiency: Information Design," American Economic Journal: Microeconomics, American Economic Association, vol. 17(3), pages 191-243, August.
    • Handle: RePEc:aea:aejmic:v:17:y:2025:i:3:p:191-243
    DOI: 10.1257/mic.20220374
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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