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Losing Face

Hugh-Jones, David and Reinstein, David (2010) Losing Face. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers 691.

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Abstract

When person A takes an action that can be interpreted as "making an offer" to person B and B "rejects the offer," then A may "lose face." This loss of face (LoF) and consequent disutility will occur only if these actions are common knowledge to A and B. While under some circumstances this LoF can be rationalized by the consequences for future reputation, we claim it also enters directly into the utility function. LoF concerns can lead to fewer offers and inefficiency in markets that involve matching, discrete transactions, and offers/proposals in both directions. This pertains to the marriage market, certain types of labor markets, admissions to colleges and universities, and certain types of joint ventures and collaborations. We offer a simple model of this, and show that under some circumstances welfare can be improved by a mechanism that only reveals offers when both parties say "yes."

Item Type: Monograph (Working Paper)
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Faculty of Social Sciences > Government, Department of
Depositing User: Jim Jamieson
Date Deposited: 13 Jul 2012 14:44
Last Modified: 27 Aug 2014 16:18
URI: http://repository.essex.ac.uk/id/eprint/2939

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