Reputational Mechanisms Research Articles

The efficient interaction of indirect reciprocity and costly punishment

Human cooperation in social dilemmas challenges researchers from various disciplines. Here we combine advances in experimental economics and evolutionary biology that separately have shown that costly punishment and reputation formation, respectively, induce cooperation in social dilemmas. The mechanisms of punishment and reputation, however, substantially differ in their means for 'disciplining' non-cooperators. Direct punishment incurs salient costs for both the punisher and the punished, whereas reputation mechanisms discipline by withholding action, immediately saving costs for the 'punisher'. Consequently, costly punishment may become extinct in environments in which effective reputation building--for example, through indirect reciprocity--provides a cheaper and powerful way to sustain cooperation. Unexpectedly, as we show here, punishment is maintained when a combination with reputation building is available, however, at a low level. Costly punishment acts are markedly reduced although not simply substituted by appreciating reputation. Indeed, the remaining punishment acts are concentrated on free-riders, who are most severely punished in the combination. When given a choice, subjects even prefer a combination of reputation building with costly punishment. The interaction between punishment and reputation building boosts cooperative efficiency. Because punishment and reputation building are omnipresent interacting forces in human societies, costly punishing should appear less destructive without losing its deterring force.

Bridging Uncertainty in Management Consulting: The Mechanisms of Trust and Networked Reputation

Bridging Uncertainty in Management Consulting: The Mechanisms of Trust and Networked Reputation

Bridging Uncertainty in Management Consulting: The Mechanisms of Trust and Networked Reputation

This article analyzes the market of management consulting and identifies institutional and transactional uncertainty as its principal features. Based on these uncertainties, we argue that competition in this market takes place on entirely different grounds than in other business sectors. We suggest that the main drivers of competitiveness are neither price nor measurable quality, but rather experience-based trust and a mechanism we label ‘networked reputation.’ An embeddedness perspective is employed to develop the concept of networked reputation as an intermediate mechanism that complements the duality of system versus personal trust and accounts for firm growth. We reinterpret secondary data on the German consulting market, illustrate the significance of these mechanisms, and demonstrate how management consulting is situated in structures of social relations.

Evidence of the Effect of Trust Building Technology in Electronic Markets: Price Premiums and Buyer Behavior

Despite the wide use of reputational mechanisms such as eBay's Feedback Forum to promote trust, empirical studies have shown conflicting results as to whether online feedback mechanisms induce trust and lead to higher auction prices. This study examines the extent to which trust can be induced by proper feedback mechanisms in electronic markets, and how some risk factors play a role in trust formation. Drawing from economic, sociological, and marketing theories and using data from both an online experiment and an online auction market, we demonstrate that appropriate feedback mechanisms can induce calculus-based credibility trust without repeated interactions between two transacting parties. Trust can mitigate information asymmetry by reducing transaction-specific risks, therefore generating price premiums for reputable sellers. In addition, the research also examines the role that trust plays in mitigating the risks inherent in transactions that involve very expensive products.

State versus Private Ownership

Private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong. In essence, this is the case for capitalism over socialism, explaining the 'dynamic vitality' of free enterprise. The great economists of the 1930s and 1940s failed to see the dangers of socialism in part because they focused on the role of prices under socialism and capitalism and ignored the enormous importance of ownership as the source of capitalist incentives to innovate. Moreover, the concern that private firms fail to address 'social goals' can be addressed through government contracting and regulation, without resorting to government ownership. The case for private provision only becomes stronger when competition between suppliers, reputational mechanisms, the possibility of provision by private not-for-profit firms, as well as political patronage and corruption, are brought into play.

Macroeconomic Policy in a Two-Party System as a Repeated Game

This paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward-looking wage-setters. If discretionary policies are followed, an economic cycle related to the cycle results in equilibrium. This cycle is significantly different from the traditional political business cycle. Reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations.