Reputation Spillover Across Relationships with Enduring and Transient Beliefs: Reviving reputation Models of Debt / Harold L. Cole, Patrick J. Kehoe.

Format:

Book

Author/Creator:

Cole, Harold L.

Contributor:

National Bureau of Economic Research.

Kehoe, Patrick J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5486.

NBER working paper series no. w5486

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Reputation Spillover Across Relationships with Enduring and Transient Beliefs

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Summary:

A traditional explanation for why sovereign governments repay debts is that they want to keep good reputations so they can easily borrow more. Bulow and Rogoff show that this argument is invalid under two conditions: (i) there is a single debt relationship, and (ii) regardless of their past actions, governments can earn the (possibly state-contingent) market rate of return by saving abroad. Bulow and Rogoff conjecture that, even under condition (ii), in more general reputation models with multiple relationships and spillover across them, reputation may support debt. This paper shows what is needed for this conjecture to be true.

Notes:

Print version record

March 1996.