(Bad) Reputation in Relational Contracting

Mallesh Pai, Rahul Deb and Matthew Mitchell

No 14408, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Motivated by markets for "expertise," we study a bandit model where a principal chooses between a safe and risky arm. A strategic agent controls the risky arm and privately knows whether its type is high or low. Irrespective of type, the agent wants to maximize duration of experimentation with the risky arm. However, only the high type arm can generate value for the principal. Our main insight is that reputational incentives can be exceedingly strong unless both players coordinate on maximally inefficient strategies on path. We discuss implications for online content markets, term limits for politicians and experts in organizations.

Keywords: Relational contracting; Bad reputation; Experts (search for similar items in EconPapers)
JEL-codes: C73 D82 D86 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-cta, nep-mic and nep-ore
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Citations: View citations in EconPapers (1)

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Journal Article: (Bad) reputation in relational contracting (2022)
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