A guarantor’s reputation rests on asymmetric information holdings

Evidence

Our clients, too, need to know that we know something about them; otherwise they would not take us as credible guarantors. Our capacity for gathering information is part of our reputation. They may even have an interest in deliberately disclosing certain details about themselves, for each party understands that the other will be encouraged to enter into the transaction if he knows that we, as guarantor, are in possession of privileged information. They need not necessarily know what we know about the other; indeed, it is better if they do not, for if our position as monopolist over information is weakened, they may learn to exchange without our guarantees or even step in as potential guarantors themselves. but they must at least believe that we know enough to keep the other party in line. — Diego Gambetta, The Sicilian Mafia The Business of…, 95

Categorization

Category: Causal Relationships

• XREF: The information-monopoly point maps precisely onto Milgrom et al.’s Law Merchant: the private judge’s value depends on accumulating deal-specific knowledge parties cannot replicate — eroding that monopoly lets parties bypass the guarantor.
• QUESTION: Gambetta claims clients deliberately disclose to bind the guarantor — is there an equivalent ‘deliberate disclosure’ mechanism in Milgrom’s model, or is that an original contribution worth probing?

Related

• Information-gathering capacity itself functions as reputational signaling of reliability (similarity 0.85)

Broader Connections

• A trustworthy reputation can be exploited because it is imperfectly known #expands (0.85) — Diego Gambetta, Trust - Making and Breaking Cooperative…, 821
• Reputation-building is a deliberate investment of foregone gains #expands (0.82) — Diego Gambetta, Trust - Making and Breaking Cooperative…, 1005
• When evidence is absent, reputation claims are settled only by stronger reputation claims #expands (0.78) — Diego Gambetta, The Sicilian Mafia The Business of…, 377
• Reputation is a public inference of disposition from background and behavior #expands (0.75) — Diego Gambetta, Trust - Making and Breaking Cooperative…, 822