This paper analyzes the optimal quality decision of a producer in a multi-period setting with reputation effects. Using a unique database of returns on real estate limited partnerships (RELPs), we empirically examine alternative theoretical predictions of optimal producer strategy. In particular, we test whether the producers in our market invest in reputation building by initially selling high quality goods and then lowering quality. Using a variety of statistical tests, we find evidence consistent with reputation building, both in the aggregate and for individual developers.
Kallberg, J. G., Liu, C. H., & Srinivasan, A. (2004). Limited partnerships and reputation formation [Electronic version]. Journal of Financial and Quantitative Analysis, 39(3), 631-659. Retrieved [insert date], from Cornell University, School of Hospitality Administration site: http://scholarship.sha.cornell.edu/articles/11/