The Economics of Gossip and Collective Reputation

This chapter deals with reputation with a strong focus on the reputation of firms—groups or coalitions. To that end, the chapter heavily draws on the economic literature. The first section illustrates the three main sources of reputation (i.e., individual, collective, and institutional) and shows how reputation develops, why it matters, and how it can be preserved. The section then focuses on collective and institutional reputations and discusses the major problems arising with them, that is, free-riding and opportunistic behavior. In the second section, we move to the relation between reputation and gossip. We discuss some basic principles of social learning and then move to the analysis of word-of-mouth, a notion that shares many similarities with gossip. Finally, we illustrate the link between individual and collective reputation, on the one hand, and word-of-mouth, on the other, where fakery is an important issue to be dealt with.