NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Julien Prat

CREST
15 Boulevard Gabriel Peri
92245 Malakoff Cedex
France

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: CREST Paris

NBER Working Papers and Publications

November 2018Reputation Cycles and Earnings Dynamics
with Boyan Jovanovic: w25252
Cyclical patterns in earnings can arise when contracts between firms and their workers are incomplete, and when workers cannot borrow or lend so as to smooth their consumption. Earnings cycles generate occasional large changes in earnings, consistent with some recent empirical findings. At the calibrated parameter values, financial constraints promote investment in reputation – an intangible capital form – in contrast to their documented inhibiting effect on investment in tangible capital.
September 2016Reputation Cycles
with Boyan Jovanovic: w22703
This paper shows that endogenous cycles can arise when contracts between firms and their customers are incomplete and when products are experience goods. Then firms invest in the quality of their output in order to establish a good reputation. Cycles arise because investment in reputation causes self-fulfilling changes in the discount factor. Cycles are more likely to occur when information diffuses slowly and consumers exhibit high risk aversion. A rise in idiosyncratic uncertainty is of two kinds that work in opposite ways: Noise in observing effort is contractionary as it generally is in agency models. But a rise in the variance of the distribution of abilities is expansionary. A calibrated version produces realistic fluctuations in terms of peak-to-trough movements in consumption and t...
 
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