Building reputation at the edge of the cliff

Type of Work:

Mimeo

Abstract:

We present a bargaining model with incomplete information and players who repeatedly revise their actions over a finite period of time. For an open set of parameters, one-sided reputation-building leads to a deadline effect in the form of last-minute strategic interaction, and is linked with a non-negligible risk of reaching an inefficient outcome. Two-sided reputation-formation necessarily induces substantial delay and inefficiency with positive probability.

Last updated on 12/19/2016