(Good and Bad) Reputation for a Servant of Two Masters

Abstract

We consider a model in which an agent takes actions to affect her reputation with two heterogeneous audiences with diverse preferences. This contrasts with standard models of reputation, which treat the audience as homogeneous. A new aspect that arises with heterogeneous audiences is that different audiences may observe outcomes commonly or separately. We show that, if all audiences commonly observe outcomes, reputation concerns are necessarily efficient-the agent's per-period payoff in the long-run is higher than in one-shot play. However, when the audiences separately observe different outcomes, the result is opposite-the agent's per-period payoff is lower than in one-shot play. Therefore, whenever possible, the agent would choose to deal with audiences commonly rather than separately. If this is not possible, the second-best solution may be to simply forego one's reputation with one of the audiences and focus entirely on the other. Our framework thus lends support to the perception that it is hard to please different diverse audiences, and it may be better to not even attempt to do so.

The Labor Market for Directors and Externalities in Corporate Governance

“…8 In contrast to most of the existing literature, our model features two conflicting types of reputation-shareholder-friendly and managementfriendly. In Bar-Isaac and Deb (2014) and Bouvard and Levy (2013), the agent also cares about his reputation with two audiences (the two audiences in our setting are shareholders and managers), but the unique feature of our model is that the actions a player takes to build a certain type of reputation increase the value of this reputation for other players and, due to strategic complementarities, the equilibrium market value of this reputation. 9 In the context of directors' reputational concerns, our paper is related to Song and Thakor (2006), Levit (2012), andRuiz-Verdu andSingh (2014).…”

Corporate reputation risk and cash holdings

“…Second, economic theory predicts that the reputation mechanism can reduce agency problems by motivating agents to take actions that are in the interest of the principal (Wilson, 1985;Weigelt and Camerer, 1988;Gomes, 2000;Schneider, 2012). For example, Bar-Isaac and Deb (2014) view reputation as an informal contract that enforces desirable managerial behaviour. Theoretically, reputation is meant to reduce information asymmetry.…”

Bundling and Quality Assurance

“…10 Hakenes and Peitz (2008) also consider imperfect public monitoring, but they assume (as we do) that there is a positive probability of accurately observing that the firm produced a low-quality product. 11 See also Bar-Isaac and Deb (2014) and Bar-Isaac, Caruana, and Cuñat (2012). These articles consider firm reputations when consumers ignore the impact of their monitoring and information gathering on the hidden actions of the firm (or agent).…”