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Information value and externalities in reputation building


  • Bolton, Gary E.
  • Ockenfels, Axel
  • Ebeling, Felix


In sequential equilibrium theory, reputation building is independent of whether the reputation builder is matched with one long-run partner or a series of short-run "strangers". We observe, however, that reputation builders are significantly more challenged by long-run players in both laboratory chain store and buyer-seller games. Reputation builder behavior is more predictable than implied by equilibrium, and so reputation information has more economic value than implied by equilibrium. For short-run players, this reputation information value is an externality. For long-run players, the value of the information is internalized and so they have greater incentive to challenge the reputation builder.

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  • Bolton, Gary E. & Ockenfels, Axel & Ebeling, Felix, 2011. "Information value and externalities in reputation building," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 23-33, January.
  • Handle: RePEc:eee:indorg:v:29:y:2011:i:1:p:23-33

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    References listed on IDEAS

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    Cited by:

    1. Bolton, Gary E. & Ockenfels, Axel, 2012. "Behavioral economic engineering," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 665-676.
    2. Gary Bolton & Ben Greiner & Axel Ockenfels, 2013. "Engineering Trust: Reciprocity in the Production of Reputation Information," Management Science, INFORMS, vol. 59(2), pages 265-285, January.
    3. BEN-YASHAR, Ruth & KRAUSZ, Miriam & NITZAN, Shmuel, 2017. "The Effect of Democratic Decision Making on Investment in Reputation," Discussion paper series HIAS-E-59, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    4. Abraham, Martin & Grimm, Veronika & Neeß, Christina & Seebauer, Michael, 2016. "Reputation formation in economic transactions," Journal of Economic Behavior & Organization, Elsevier, vol. 121(C), pages 1-14.
    5. Gary Bolton & Ben Greiner & Axel ockenfels, 2015. "Conflict resolution vs. conflict escalation in online markets," Discussion Papers 2015-19, School of Economics, The University of New South Wales.
    6. Ilukor, John & Birner, Regina, 2015. "Do Veterinary Paraprofessionals Provide Quality Clinical Veterinary Services for Cattle? Results from a Role Play Experiment in Rural Uganda," 2015 Conference, August 9-14, 2015, Milan, Italy 211781, International Association of Agricultural Economists.

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