A Reputational Theory of Firm Dynamics

Simon Board and Moritz Meyer-ter-Vehn

American Economic Journal: Microeconomics, 2022, vol. 14, issue 2, 44-80

Abstract: We study the life cycle of a firm that produces a good of unknown quality. The firm manages its quality by investing while consumers learn via public breakthroughs; if the firm fails to generate such breakthroughs, its revenue falls and it eventually exits. Optimal investment depends on the firm's reputation (the market's belief about its quality) and self-esteem (the firm's own belief about its quality), and is single-peaked in the time since a breakthrough. We derive predictions about the distribution of revenue and propose a method to decompose the impact of policy changes into investment and selection effects.

JEL-codes: D11 D21 D25 D83 G31 L15 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/mic.20190376 (application/pdf)
https://doi.org/10.3886/E118970V1 (text/html)
https://www.aeaweb.org/doi/10.1257/mic.20190376.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/mic.20190376.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: A Reputational Theory of Firm Dynamics (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:aea:aejmic:v:14:y:2022:i:2:p:44-80

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/mic.20190376

Access Statistics for this article

American Economic Journal: Microeconomics is currently edited by Johannes Hörner

More articles in American Economic Journal: Microeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().