(Good and Bad) Reputation for a Servant of Two Masters

Abstract

We present a model in which an agent takes actions to affect her reputation with two audiences with diverse preferences. This contrasts with standard reputation models that consider a homogeneous audience. A new aspect that arises is that different audiences may observe outcomes commonly or separately. We show that, if all audiences commonly observe outcomes, reputation concerns are necessarily efficient—the agent's per-period payoff in the long run is higher than in one-shot play. However, when audiences separately observe different outcomes, the result is the opposite. Therefore, the agent would prefer to deal with audiences commonly. If this is not possible, the second-best solution may be to forgo reputation with one audience and focus entirely on the other. (JEL D11, D82)