Something to prove: reputation in teams

Authors


  • This article is based on Chapter 3 of my PhD thesis. I am grateful to the Financial Markets Group at LSE, the Eitan Berglas School of Economics at Tel Aviv University, the Department of Economics at Harvard University, CMS-EMS at Northwestern University, and the Department of Economics at the Stern School of Business, NYU for providing stimulating environments to work on this article. I also thank seminar participants at these institutions, whose comments have significantly improved and refined my initial intuition. I particularly thank for their insight Mariagiovanna Baccara, Matthew Bidwell, Luis Cabral, Oliver Hart, Christian Hellwig, Bengt Holmström, Susan Lee, George Mailath, Niko Matouschek, Gerd Muehlheusser, Felix Muennich, Carlo Rosa, Larry Samuelson, Yossi Spiegel, Ran Spiegler, Steve Tadelis and Leeat Yariv; I am especially grateful to Margaret Bray, Eddie Dekel and Leonardo Felli. I also thank the Editor Raymond Deneckere and an anonymous referee for comments that improved the article. I gratefully acknowledge financial support from the ESRC (R42200034040).

Abstract

Agents work for their own reputations when young but for their firms' when old. An individual with an established reputation cannot credibly commit to exerting effort when working alone. However, by hiring and working with juniors of uncertain reputation, seniors will have incentives to exert effort. Incentives for young agents arise from a concern for their own reputation (and the opportunity to take over the firm), whereas older agents work for the reputation of their firms (and the opportunity to sell out to juniors). Thus, the article explains the choice to work in teams. It also exemplifies how type uncertainty in reputation models may be endogenously and strategically introduced.

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