The power and influence of rating agencies with insights into their misuse

Kaushik Basu and Haokun Sun

Economic Modelling, 2022, vol. 109, issue C

Abstract: The paper investigates the source of power and influence of agencies engaged in rating and ranking nations. Their power and knowledge are puzzling since the economics profession is itself split about what constitutes good fundamentals for an economy. Based on some stylized facts of the Ease of Doing Business rankings, the paper constructs a model that shows ratings can contribute to creating a focal point for investors, prompting behavior that makes the ratings come out right in retrospect. The paper then comments on the real-world implications of the model, possible extensions of the theory, and how the power to create focal points can be misused by organizations engaged in rating and ranking nations.

Keywords: Rating agencies; Ranking sovereigns; Focal points; Strategic complementarity; Ease of doing business (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:109:y:2022:i:c:s0264999322000098

DOI: 10.1016/j.econmod.2022.105763

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