Disappearance of Reputations in Two-Sided Incomplete-Information Games

Abstract

This paper examines the sustainability of reputations in a class of games with imperfect public monitoring and two long-lived players, both of whom have private information about their own type and uncertainty over the types of the other player. This class, namely reputation games with one-sided moral hazard, can capture economic interactions that may involve hidden-information or hidden-action. Extending the techniques of Cripps et al. (2004), it is found that neither player can sustain a reputation permanently for playing a noncredible behavior in these games; and, the reputations disappear uniformly across all Nash equilibria. (C) 2014 Elsevier Inc. All rights reserved.