Essays on the economics of reputation

Thesis

This thesis is comprised of three essays. These essays model facets of illicit markets using economic theories of reputation and go on to develop new theories of reputation.

In chapter 1, we start by defining illicit markets. We build a model of trade in an illicit market where honesty is enforced through reputation. We then show how criminals' heterogeneity in their ability to avoid detection can have interesting consequences. In particular, such heterogeneity can explain why illicit market participants might sometimes adopt surprisingly blatant trading strategies. Heterogeneity among criminals in terms of how they are affected by enforcement can give rise to counter-intuitive market reactions to changes in the level of enforcement.

Chapter 2 considers the market for stolen payment data such as credit card numbers. The central observation is that stealing financial data and using it for personal gain are two very different skills. An online market exists through which those who steal data can sell it to those who can ``cash in''. The low prices in these markets are not evidence of a failure of the reputational system, but of large outside options on one side of the market.

Finally chapter 3 considers reputation more generally. We find folk theorem and incomplete information models place too much faith in the knowledge and rationality of short-lived players. We propose instead a new model with more realistic assumptions about the information available to short-lived players and their ability to use it. This model generates natural cycles in the reputation of the rational long-lived player.

Authors: Mell, A

• Publication date: 2012
• DOI: 10.5287/ora-rdxx878od
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Keywords: Reputation; Illegal behavior and the enforement of law; Illicit trade
• Subjects: Economics; Microeconomics