paper No. 01-002
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, and
the general equilibrium analysis links the value of a name to the market for services.
This link causes a non-monotonicity that precludes higher types from sorting themselves
through the market for names and leads to ôsensible" dynamics: reputations, and name
prices, increase after a success and decrease after a failure.
Firm Reputation with Hidden Information
this paper (PDF)