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Fragility of reputation and clustering of risk-taking

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  • , L.

    (Department of Economics, University of Pennsylvania)

Abstract

Reputation concerns in credit markets restrain borrowers' temptations to take excessive risk. The strength of these concerns depends on the behavior of other borrowers, rendering the reputational discipline fragile and subject to breakdowns without obvious changes in economic fundamentals. Furthermore, at an aggregate level, breakdowns are clustered among borrowers with intermediate and good reputations, magnifying otherwise small economic shocks.

Suggested Citation

  • , L., 2013. "Fragility of reputation and clustering of risk-taking," Theoretical Economics, Econometric Society, vol. 8(3), September.
    • Handle: RePEc:the:publsh:1207
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    Cited by:

    1. Guillermo Ordoñez, 2018. "Sustainable Shadow Banking," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(1), pages 33-56, January.
    2. Guillermo L. Ordonez, 2010. "Confidence Banking," 2010 Meeting Papers 310, Society for Economic Dynamics.
    3. Gary Gorton & Guillermo Ordo?ez, 2014. "Collateral Crises," American Economic Review, American Economic Association, vol. 104(2), pages 343-378, February.
    4. Bernardita Vial & Felipe Zurita, 2013. "Reputation-Driven Industry Dynamics," Documentos de Trabajo 436, Instituto de Economia. Pontificia Universidad Católica de Chile..
    5. Ordoñez, Guillermo, 2018. "Confidence banking and strategic default," Journal of Monetary Economics, Elsevier, vol. 100(C), pages 101-113.

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    More about this item

    Keywords

    Reputation; global games; risk-taking; fragility;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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