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Inducing good behavior via reputation

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Özdoğan, Ayça and Barlo, Mehmet (2021) Inducing good behavior via reputation. [Working Paper / Technical Report] Sabanci University ID:UNSPECIFIED

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Abstract

This paper asks whether or not it is possible to induce agents to good behavior permanently via regulators' reputations and attain perpetual social efficiency. We propose and analyze a repeated incomplete information game with a suitable payoff and monitoring structure between a regulator possessing a behavioral type and an agent. We provide an affirmative answer when a patient regulator faces myopic agents: Reputation empowers the regulator to prevent agents' bad behavior in the long-run with no cost and, hence, attain the social optimum in any Nash equilibrium. These findings are robust to requiring short-lived agents to choose any one of their actions with an arbitrarily small but positive probability. On the other hand, we show that when both parties are long-lived and sufficiently patient, the limiting robust equilibrium cannot be close to perpetual good behavior. The contrast we attain demonstrates the significance of the interaction's longevity and exhibits a novel application of the theory of learning and experimentation in repeated games.

Item Type:Working Paper / Technical Report
Uncontrolled Keywords:Reputation, repeated games, long-lived vs. short-lived agents, regulation.
Subjects:H Social Sciences > HB Economic Theory > HB135-147 Mathematical economics. Quantitative methods
H Social Sciences > HB Economic Theory
ID Code:41359
Deposited By:Mehmet Barlo
Deposited On:11 Mar 2021 16:33
Last Modified:11 Mar 2021 16:33

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