Reputation When Threats and Transfers are Available

22 Pages Posted: 26 Jul 2007

See all articles by Ernesto Dal Bó

Ernesto Dal Bó

National Bureau of Economic Research (NBER)

Pedro Dal Bo

Brown University - Department of Economics

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit; National Bureau of Economic Research (NBER)

Abstract

We present a model where a long run player is allowed to use both money transfers and threats to influence the decisions of a sequence of short run players. We show that threats might be used credibly (even in arbitrarily short repeated games) by a long-lived player who gains by developing a reputation of carrying out punishments. Particular cases of the model are a long-lived pressure group offering rewards and punishments to a series of targets (public or corporate officials) in exchange for policy favors, or that of a long-lived extorter who demands money in order not to punish. We use the model to analyze the convicted "nonpayor" debate around judicial corruption. The model highlights formal similarities between lobbying and extortion.

Suggested Citation

Dal Bó, Ernesto and Dal Bo, Pedro and Di Tella, Rafael, Reputation When Threats and Transfers are Available. Journal of Economics & Management Strategy, Vol. 16, No. 3, pp. 577-598, Fall 2007, Available at SSRN: https://ssrn.com/abstract=1003291 or http://dx.doi.org/10.1111/j.1530-9134.2007.00151.x

Ernesto Dal Bó (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Pedro Dal Bo

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States
401-863-2953 (Phone)
401-863-1970 (Fax)

HOME PAGE: http://www.econ.brown.edu/fac/Pedro_Dal_Bo/

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States
617-495-5048 (Phone)
617-496-5985 (Fax)

HOME PAGE: http://www.people.hbs.edu/rditella/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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