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Information Acquisition and Reputation Dynamics

  • Qingmin Liu

    ()

    (Graduate School of Business, Stanford Univeristy)

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    We study reputation games where a long-lived player with a possible commitment faces a sequence of short-lived players who must pay to observe the long-lived player's past behavior. In this costly information model we show that equilibrium behavior is cyclical. The long-lived player builds her reputation up only to exploit it; then builds it up again, and so on. We call this behavior reputation renewal and show that for a wide class of reputation games as well as for a host of possible alternatives to the information cost structure, all equilibria display reputation renewal. We provide a method to construct the equilibria, and explicitly construct an essentially unique equilibrium for the case of linear cost functions. We also find that in the reputation renewal equilibria, the short-lived players always randomize how much information they purchase, but play pure strategies once the information is obtained.

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    File URL: http://www-siepr.stanford.edu/repec/sip/06-030.pdf
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    Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 06-030.

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    Date of creation: Jan 2006
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    Handle: RePEc:sip:dpaper:06-030
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    4. Cole, Harold L & Dow, James & English, William B, 1995. "Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 365-85, May.
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    6. George J. Mailath & Larry Samuelson, . "Who Wants a Good Reputation?," Penn CARESS Working Papers a3e3219aee004bd237f8112f9, Penn Economics Department.
    7. Carl Shapiro, 1982. "Consumer Information, Product Quality, and Seller Reputation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 20-35, Spring.
    8. Douglas W. Diamond, 1998. "Reputation Acquisition in Debt Markets," Levine's Working Paper Archive 602, David K. Levine.
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    10. Robert J. Barro, 1986. "Reputation in a Model of Monetary Policy with Incomplete Information," NBER Working Papers 1794, National Bureau of Economic Research, Inc.
    11. V. V. Chari & Patrick E. Kehoe, 1990. "Sustainable Plans and Mutual Default," IMF Working Papers 90/22, International Monetary Fund.
    12. Mehmet Ekmekci, 2010. "Sustainable Reputations with Rating Systems," Discussion Papers 1505, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    13. Paul Milgrom & John Roberts, 1997. "Predation, reputation , and entry deterrence," Levine's Working Paper Archive 1460, David K. Levine.
    14. Rosenthal, R W, 1979. "Sequences of Games with Varying Opponents," Econometrica, Econometric Society, vol. 47(6), pages 1353-66, November.
    15. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    16. David Kreps & Paul Milgrom & John Roberts & Bob Wilson, 2010. "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Levine's Working Paper Archive 239, David K. Levine.
    17. Christopher Phelan, 2001. "Public trust and government betrayal," Staff Report 283, Federal Reserve Bank of Minneapolis.
    18. Stokey, Nancy L, 1989. "Reputation and Time Consistency," American Economic Review, American Economic Association, vol. 79(2), pages 134-39, May.
    19. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
    20. Taylor, John B., 1983. "`Rules, discretion and reputation in a model of monetary policy' by Robert J. Barro and David B. Gordon," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 123-125.
    21. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796, December.
    22. Margaret J. Miller (ed.), 2003. "Credit Reporting Systems and the International Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262134225, March.
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