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Publicado en: Documento de trabajo

Incentives and Reputation when Names can be Replaced: Valjean Reinvented as Monsieur Madeleine

Bernardita Vial; Felipe Zurita.

Documento de Trabajo IE-PUC, N° 447, 2013.

This article studies the effect of the possibility that firms change their names over their incentives for choosing high quality. A firm may want to start over under a new name in order to avoid market punishment, if the reputation carried by its former name is too low. We find that that the effect of the name-changing option on incentives is ambiguous. Although the ability of avoiding punishment generally hurts incentives, it may sometimes improve them. Moreover, doing so may be the only way out a low-effort trap. The conditions under which each case obtains are explored.


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