Reputational incentives in markets generate quality that centralized quotas could not reward.

Evidence

If a producer’s reputation with potential buyers is of great interest, the producer has reason to produce higher-quality goods even though there might be no easily specified contractual definition of quality. Hence, as in the literature on extracontractual aspects of business dealings (for example, Macauley 1963; Bohnet, Frey, and Huck 2001), producers and buyers would be in a partially cooperative relationship rather than the nearly adversarial relationship of the Soviet economy. — Russell Hardin, Trust and Trustworthiness, 842

Categorization

Category: Causal Relationships

Related

• Reputation functions as a commodity that assures others one will honor commitments (similarity 0.78)

Broader Connections

• Reputation means changing beliefs, not merely incentive-compatible behavior #expands (0.85) — Diego Gambetta, Trust - Making and Breaking Cooperative…, 966