Article | Journal of Economics & Management Strategy

Reputation when Threats and Transfers are Available

by Ernesto Dal Bo, Pedro Dal Bo and Rafael Di Tella

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.

Keywords: Crime and Corruption; Decision Choices and Conditions; Game Theory; Mathematical Methods; Interests; Power and Influence; Reputation;

Citation:

Dal Bo, Ernesto, Pedro Dal Bo, and Rafael Di Tella. "Reputation when Threats and Transfers are Available ." Journal of Economics & Management Strategy 16, no. 3 (Fall 2007).