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Working Paper
Can Reputation Ensure Efficiency in the Structured Finance Market? Majority Voting: A Quantitative Investigation
In Elamin (2013), the credit rating agency (CRA) cannot credibly fully reveal its information about the quality of a rated structured finance project, when ratings are unverifiable. Can the fear of losing its reputation discipline the CRA? In this paper, there is incomplete information about the type of the CRA. With some probability, it can be a truthful type, always fully revealing its information. At every period, the (updated) probability that the CRA is of the truthful type is its reputation. With only two project types and when the CRA?s reputation is high enough, an informationally ...