The Dynamics of Collective Reputation

I present a stochastic version of Tirole's ( 1996) collective reputation model. In equilibrium, group behavior is persistent due to complementarity between the current incentives of group members and the group's reputation, which depends on its history. A group can maintain a strong reputation even as conditions become unfavorable, but an improvement in the environment may not help a group with a poor reputation. I also connect the model to the theory of statistical discrimination and show that the same mechanism can explain why discrimination might persist over time.