Firm Reputation with Hidden Information

Posted: 24 Jan 2002

See all articles by Steven Tadelis

Steven Tadelis

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Abstract

An adverse selection model of firm reputation is developed in which short-lived clients purchase services from firms operated by overlapping generations of agents. A firm's only asset is its name, or reputation, and trade of names is not observed by clients. As a result, names are traded in all equilibria regardless of the economy's horizon. The general equilibrium analysis links the value of a name to the market for services. This causes a non-monotonicity that precludes higher types from sorting themselves through the market for names, and leads to "sensible" dynamics: reputations, and name prices, increase after success and decrease after failure.

Keywords: Reputation as an asset, Trade of names, Overlapping generations

JEL Classification: C70, D80, L14

Suggested Citation

Tadelis, Steven, Firm Reputation with Hidden Information. Available at SSRN: https://ssrn.com/abstract=297668

Steven Tadelis (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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