A patient seller faces a sequence of buyers and decides whether to build a reputation for supplying high quality products. Each buyer does not have access to the seller's complete records, but can observe all previous buyers' actions, and some informative private signal about the seller's actions. I examine how the private signals the buyers receive affect the speed of social learning and the seller's incentives to establish reputations. When each buyer privately observes a bounded (possibly stochastic) subset of the seller's past actions, the speed of social learning is strictly positive but can vanish to zero as the seller becomes patient. As a result, reputation building leads to low payoff for the patient seller and low social welfare. When each buyer observes an unboundedly informative private signal about the seller's current-period action, the speed of learning is uniformly bounded  below and a patient seller can secure high returns from building reputations. My results provide an explanation to empirical findings of reputation failures in developing countries. I also discuss the effectiveness of various policies in accelerating social learning and encouraging sellers to establish good reputations.
A patient seller faces a sequence of buyers and decides whether to build a reputation for supplying high quality products. Each buyer does not have access to the seller's complete records, but can observe all previous buyers' actions, and some informative private signal about the seller's actions. I examine how the buyers' private signals affect the speed of learning and the seller's incentives to establish reputations. When each buyer privately observes a bounded (possibly stochastic) subset of the seller's past actions, the speed of learning is strictly positive but can vanish to zero as the seller becomes patient. As a result, reputation building can lead to low payoff for the patient seller and low social welfare. When each buyer observes an unboundedly informative private signal about the seller's current-period action, the speed of learning is uniformly bounded from below and a patient seller can secure high returns from building reputations. My results provide an explanation to empirical findings of reputation failures in developing countries. I also discuss the effectiveness of various policies in accelerating social learning and encouraging sellers to establish good reputations.
R
private signals the buyers receive
buyers' private signals
D
social
D
social
R
leads
can lead
A
from