The Effect of Incentives: The Value of Reputation

It is useful to model the temptation to act wrongly using the prisoner’s dilemma, one of the most important games in game theory. The prisoner’s dilemma appears to show that the pursuit of self-interest can paradoxically lead to situations in which everyone makes choices they know will undermine their self-interest. However, introducing the possibility of repeated, self-sorting prisoner’s dilemmas with reputation effects reveals something important about the connection between self-interest and morality: We have strong incentives not to cheat because in the long run, we do best by developing the reputation for being honest. However, unfortunately, this also introduces an incentive to exaggerate our moral goodness and to engage in moral grandstanding.

Two-Period Reputation Model of Knowledge Sharing between Enterprises Based on Signal Game Analysis

Knowledge sharing between enterprises is an important way to obtain external research and development (R&D) resources and keep competitiveness. This paper used a reputation model based on a two-period signal game to explore knowledge-sharing micromechanism between enterprises and key influencing factors of enterprises. The results show that reputation effects are an important mechanism that will make knowledge sharing between enterprises operate effectively. Motivated by reputation effects, even those noncooperative enterprises continue to pretend to be cooperative enterprises for knowledge sharing before the end of the game. Finally, we adopt the analytical methods and conclusions given by the model in this article to analyze opportunistic problems in knowledge sharing among cooperative enterprises and put forward some valuable suggestions on the conditions for the effective use of corporate reputation effects.

To Buy Green or Not to Buy Green: Do Structural Dependencies Block Ecological Responsiveness?

Despite the significant increase in interest in sustainable business practices, decisions on switching to more environmentally friendly input materials are understudied. In a conjoint experiment, we presented 267 Finnish manufacturing firms with an opportunity to acquire an alternative, more ecological input material and investigated their willingness to switch to that material. We find that in general, firms are willing to substitute their current principal input with a more ecological alternative under conditions of functional parity. However, such willingness is contingent on the firm’s value creation structures. Specifically, if the products and processes driving the firm’s value creation rely more on tangible materials (high materiality), firms anticipate higher input-switching costs, which leads to inertia and slows the adoption of alternative, environmentally friendlier inputs. However, if a firm’s value creation is driven more by intangible assets, like intellectual property and amortizable development costs, input-switching costs appear lower. Such firms not only find it easier to adopt ecological inputs but may also derive greater benefit from leveraging the positive reputation effects associated with ecological improvements. By exploring how willingness to switch to an alternative input material is constrained by organizational structures, our findings contribute to research on input substitution and theories of external influence, like demand-side research, stakeholder theory, and ecological responsiveness.

Reputation and Investor Activism: A Structural Approach

We measure the impact of reputation for proxy fighting on investor activism by estimating a dynamic model in which activists engage a sequence of target firms. Our estimation produces an evolving reputation measure for each activist and quantifies its impact on campaign frequency and outcomes. We find that high reputation activists initiate 3.5 times as many campaigns and extract 85% more settlements from targets, and that reputation-building incentives explain 20% of campaign initiations and 19% of proxy fights. Our estimates indicate these reputation effects combine to nearly double the value activism adds for target shareholders.

Services under new management: the myth of a fresh start

Purpose The purpose of this study is to examine the consumer-side effects of “under new management” (UNM) signs. The authors integrate cue-utilization theory and relevance theory to guide hypotheses about the conditions under which these signs are and are not beneficial. Design/methodology/approach Two consumer-based experiments were used to examine the quality and reputation effects of restaurants signaling a management change on potential and existing customers. Findings The results suggest that positive and negative effects are possible. The direction of these effects is contingent upon consumers’ prior experience, type of service (i.e. search/experience) and the relevance of the signal. Research limitations/implications The study is limited to one industry (i.e. restaurants) and examines the effects of market signals on perceived quality and reputation. In addition, this research brought forth the notion of “signal relevance” and suggested that it may be explicitly tied to attributions. However, this assertion must examine multiple signals (relevant/irrelevant) and their contingent effects on consumer perceptions. Practical implications The findings advise businesses to use caution when using signals such as an “UNM” sign, as they appear to have different effects depending on the experience of the consumer with the service and the relevance of the signal. Originality/value This research contributes to the literature on cue utilization theory to understand the effects of marketplace cues on consumer perceptions. It contributes to marketing theory and practice by proposing a model of cue effects based on prior customer experience, type of service and cue relevance.