Reputation Cycles
Julien Prat and
Boyan Jovanovic ()
No 11543, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
This paper shows that endogenous cycles can arise when contracts between firms and their customers are incomplete and when products are experience goods. Then firms invest in the quality of their output in order to establish a good reputation. Cycles arise because investment in reputation causes self-fulfilling changes in the discount factor. Cycles are more likely to occur when information diffuses slowly and consumers exhibit high risk aversion. A rise in idiosyncratic uncertainty is of two kinds that work in opposite ways: Noise in observing effort is contractionary as it generally is in agency models. But a rise in the variance of the distribution of abilities is expansionary. A calibrated version produces realistic fluctuations in terms of peak-to-trough movements in consumption and the spacing of time between recessions.
Keywords: Endogenous fluctuations; Reputation; Intangible capital (search for similar items in EconPapers)
JEL-codes: E22 E32 L14 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-cta, nep-mac and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://cepr.org/publications/DP11543 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
Related works:
Working Paper: Reputation Cycles (2016) 
Working Paper: Reputation Cycles (2015) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:11543
Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP11543
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().