A Theory of Credibility

Joel Sobel

The Review of Economic Studies, 1985, vol. 52, issue 4, 557-573

Abstract: This paper presents models in which one agent must decide whether to trust another, whose motives are uncertain. Reliability can only be communicated through actions. In this context, it pays for people to build a reputation based on reliable behaviour; someone becomes credible by consistently providing accurate and valuable information or by performing useful services. The theory provides a justification for long-term arrangements without binding contracts. It also describes those situations where it pays an agent to cash in on his reputation.

Date: 1985
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:52:y:1985:i:4:p:557-573.

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