A Reputational Theory of Firm Dynamics
نویسندگان
چکیده
We propose a firm lifecycle model in which the firm privately invests in its quality and thereby its reputation. Over time, both the firm and the market learn about the firm’s evolving quality via infrequent breakthroughs. The firm can also exit if its value becomes negative, giving rise to selection effects. In a pure-strategy equilibrium, incentives are single-peaked: the firm shirks immediately following a breakthrough, works for intermediate levels of reputation and shirks again when it is about to exit. This investment behavior yields predictions for the distribution of firm productivity and the survival rate. Finally, we compare the model to two variants: one in which the firm’s investment is publicly observed, and a second in which the firm has private information about its product quality.
منابع مشابه
Reputation for Quality by Simon Board
We propose a model of firm reputation in which a firm can invest or disinvest in product quality and the firm’s reputation is defined as the market’s belief about this quality. We analyze the relationship between a firm’s reputation and its investment incentives, and derive implications for reputational dynamics. Reputational incentives depend on the specification of market learning. When consu...
متن کاملReputational Incentives and Dynamics∗
We study a dynamic moral hazard model, where a firm can invest into the quality of its product which, in turn, is imperfectly observed by consumers. We analyse how investment incentives depend on the firm’s reputation and the information structure of consumer learning, and solve for the resulting reputational dynamics. When consumers learn through good news, investment incentives are increasing...
متن کاملReputation for Quality∗
We propose a new model of firm reputation where product quality is persistent and determined by the firm’s past investments. Reputation is then modeled directly as the market belief about quality. We analyze how investment incentives depend on the firm’s reputation and derive implications for reputational dynamics. Reputational incentives depend on the specification of market learning. When con...
متن کاملReputational Comparative Advantage and Multinational Enterprise
For a firm without a readily identifiable brand name, quality reputation may solely reflect the country of origin. In this paper we endogenize country-of-origin reputations and show that these selffulfilling reputations determine not only the average quality of a country’s exports but also the type of products in which a country specializes. Hence, the pattern of international trade can be dete...
متن کاملTHE WILLIAM DAVIDSON INSTITUTE AT THE UNIVERSITY OF MICHIGAN BUSINESS SCHOOL Reputation Flows: Contractual Disputes and the Channels for Inter-firm Communication
Inter-firm information exchange with respect to the reliability of trade partners may be unmediated in the sense that it involves direct communication between the personnel of two firms. Alternatively, this information flow may be channeled by or through an organization such as a trade association. We assess the relationship between these two mechanisms for conveying reputational information. B...
متن کامل