2012•Unpublished venueRequires access
Fiduciary Responsibility, "Star" Cultures, and Reputation
Zhaohui Chen, Alan D. Morrison
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Abstract
We analyze the tension between individual and institutional reputation building. In our model, young agents with trust-based, fiduciary customer relationships can build a strong reputation by taking actions that showcase their talents, but are harmful to their customers. A long-lived professional services firm can resolve this problem by monitoring junior fiduciaries. In such firms, there is conflict between the objectives of the junior fiduciaries and those of the owners, whose fortune is tied up in the long-run reputation of the firm. We identify conditions under which institutional reputation is insufficient to ensure that this conflict is resolved efficiently. JEL Codes: L14, G20