A Theory of Collective Reputations with Applications to the Persistence of Corruption and to Firm Quality
The paper is a first attempt at modeling the idea of group reputation as an aggregate of individual reputations. A member's current incentives are affected by his past behavior and, because his track record is observed only with noise, by the group's past behavior as well. The paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature. It shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone, and it derives necessary and sufficient conditions under which group reputations can be rebuilt. Last, the paper applies the theory to analyze when a large firm can maintain a reputation for quality. Copyright 1996 by The Review of Economic Studies Limited.
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