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Reputation

Paper Session

Sunday, Jan. 5, 2020 10:15 AM - 12:15 PM (PDT)

Marriott Marquis, Carlsbad
Hosted By: Econometric Society
  • Chair: Harry Pei, Northwestern University

Slow Observational Learning and Reputation Failures

Harry Pei
,
Northwestern University

Abstract

I study a reputation model in which each short-run player observes the entire history of her predecessors' actions, in addition to a (possibly stochastic) bounded subset of the long-run player's past actions. Despite short-run players never herd on actions that do not best reply against the long-run player's commitment action, reputation effects fail since the speed of observational learning decreases endogenously with the long-run player's patience. When each short-run player can also observe an informative signal about the long-run player's current period action, whether reputation effects fail or not depend on a resistant to learning condition. When the long-run player's action choice is binary, resistant to learning is equivalent to bounded informativeness. When the long-run player has three or more actions, environments with unbounded informativeness can also be resistant to learning.

Reputation and Information Design

Laurent Mathevet
,
New York University
David Pearce
,
New York University
Ennio Stacchetti
,
New York University

Abstract

Can the commitment assumption underlying information design be replaced by reputational enforcement? A long-run sender periodically makes cheap talk announcements to the public, anticipating how it may affect his reputation as a trustworthy type. As he becomes perfectly patient, his payoff converges to his information-design value in all equilibria. By contrast, in the standard repeated game, he typically underperforms compared to information design. In a specialized environment, we show that convergence also happens in behavior: players' equilibrium behavior coincides asymptotically with the information-design solution. We also examine welfare properties numerically by adapting strategic dynamic programming to reputational games.

Communication, Feedback and Repeated Moral Hazard with Short-Lived Buyers

Bruno Jullien
,
Toulouse School of Economics
In-Uck Park
,
University of Bristol

Abstract

Myopia of short-lived buyers stands in the way of disciplining a long-lived producer/seller to supply their experience good of the desired quality. We show that cheap-talk communication by the seller can help solve such moral hazard problem when the buyers have access to seller’s track record. Specifically, pre-trade communication of the current product’s quality observed by the seller, even if imprecise, enhances efficiency in equilibrium, asymptotically reaching full efficiency as the seller’s observation error vanishes. We characterize the precise range of observation error for which communication improves efficiency and the maximum extent to which it does so.

Mediation in Reputational Bargaining

Jack Fanning
,
Brown University

Abstract

This paper investigates the potential for mediation in a dynamic reputational bargaining model, where rational agents can imitate behavioral types. Agents are free to ignore the mediator, but she can affect behavior by eliciting information about their types and strategically releasing this over time. I first show that a simple communication protocol, in which the mediator immediately suggests a compromise when both parties accept its terms in private, cannot improve on unmediated bargaining. Adding noise to this protocol, however, can improve payoffs if behavioral types are unlikely. Turning to a mechanism design approach I allow for arbitrary mediator protocols and characterize the set of equilibria in which rational agents never demand more than behavioral types. Within this set, I then identify an essentially unique mediator protocol that maximizes rational agents’ payoffs for symmetric bargaining problems. This optimal protocol improves on unmediated outcomes if and only if agents are risk averse, or behavioral types are unlikely, or behavioral types make large demands. Qualitative conclusions differ markedly when a mechanism designer can impose outcomes.

Collective Reputation

Volker Nocke
,
University of California-Los Angeles
Roland Strausz
,
Humboldt University of Berlin

Abstract

We study problems of free riding in building a collective reputation. In particular, we analyze the incentives of an organization to engage in “umbrella branding” in an infinitely repeated game of imperfect public monitoring. There are two markets. In each market, the headquarter (active in both markets) and a retailer (active in only that market) jointly produce a good. The quality of the good depends on the (complementary) effort of both players but is only noisily observed by consumers. The two goods can either be sold under different brand names or under the same (umbrella branding). Depending on the share of the effort cost borne by the retailers, umbrella branding may perform worse because of retailers' incentives to take a free ride on each other. However, no matter how small the effort cost borne by the headquarter, as long as it is strictly positive, umbrella branding is strictly optimal for large discount factors; this involves providing the retailers with revenue shares that exceed their effort cost shares.
JEL Classifications
  • C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
  • L14 - Transactional Relationships; Contracts and Reputation; Networks