Centre for Development Economics
and
Department of Economics, Delhi School of Economics

ANNOUNCE A SEMINAR

Reputation Building in the Presence of Rating Agents

by

Priyanka Sharma
Texas A&M University

January 13, Friday at 3 p.m.

Venue : AMEX Conference Room (Second Floor)
Department of Economics, Delhi School of Economics

All are cordially invited

Abstract

I consider a finitely repeated game in which an informed borrower interacts with a series of uninformed lenders. A third party rating agent collects information about the past repayment history of borrower and periodically observes an additional signal correlated with borrowers hidden characteristics. He processes this information and provides it to the uninformed lender in the form of a rating. It is shown that information beyond past default choices of the borrower discourages reputation building by low types of borrowers and causes more frequent defaults by them. There exists a set of histories for which the additional information ceases to affect the future ratings at all. Further, additional information has welfare reducing impact on the low types of borrowers.