Reputation deals: A theory of endogenous teams

Günther Lang

Atlantic Economic Journal, 2003, vol. 31, issue 1, 32-50

Abstract: This paper complements the traditional theory of teams [Fama, 1980; Holmstrom, 1982a, 1982b] by introducing endogenous team formation by agents who are concerned with their reputations and are informed about the types of their potential teammates. Such a constellation leads to a tradeoff between joining a high-productivity type but a low-reputation partner. Gains from trade are analyzed, both, for the case of non-transferable and transferable utility, and the lessons are discussed that can be learned from observing reputation deals. Finally a signaling model of teaming is developed that captures in a fully rational way the process of information acquisition by the agents' strategic opponent: the market. Copyright International Atlantic Economic Society 2003

Date: 2003
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DOI: 10.1007/BF02298461

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