Reputation without a Control Group

Abstract

An adviser who warns that a task is difficult may become harder to evaluate when her advice is followed more thoroughly. We study a long-lived adviser and successive short-lived workers who choose between standard and intensive implementation. Standard implementation reveals whether the warning was correct and gives the next worker an opportunity to acquire cost-saving practical knowledge. Intensive implementation protects the project but produces only occasional evidence about the adviser. We construct a stationary sequential equilibrium in which the adviser initially accepts an informative implementation, withholds the next project after her reputation improves, and resumes recommendations once inherited know-how has been lost. The interruption is chosen because it changes the successor's implementation decision: preserving know-how reverses the adviser's preference at the relevant history. All realized evidence remains public. Weak subsequent evidence eventually ends the low-ability adviser's protection, but this can take a long time.