Reputation for Quality

The moral hazard problem poses itself, for example, when a firm sells an inferior product to its customers. The opportunism behind this behaviour can be mitigated through reputations. A firm is willing to produce good products if they are rewarded through a high reputation and premium prices. In his paper "Reputation for Quality" (Econometrica, 2013), Moritz Meyer-ter-Vehn proposes a canonical game-theoretic model that characterises the resulting incentives for the firm to invest in its products. One key finding is that a high-reputation firm has strong incentives to invest and protect its reputation when consumer learning is through catastrophic breakdowns of low-quality products, while low reputation firms have strong incentives to invest and build their reputation when consumer learning is through spectacular breakthroughs of high-quality products. In his paper "A Reputational Theory Firm Dynamics" (together with Simon Board) he embeds this model of reputation into an industry dynamics framework and investigates the resulting firm dynamics and steady-state distributions.

Mr Meyer-ter-Vehn is a micro-economic theorist with research interest in both pure and applied economic theory. His research agenda in pure theory focuses on robust mechanism design. On the applied side, he studies dynamic games with incomplete information. His more recent work applies economic theory to industrial organisation, labour economics and information economics.

Moritz Meyer-ter-Vehn is Associate Professor of Economics at UCLA. He received his Doctorate from the University of Bonn in 2003 and worked in the private sector for McKinsey and SAP before joining UCLA as an assistant professor in 2007.