Reputation

In economic transactions, and especially in organizational settings, reputation is a very important concern. This is especially true when considering transactions that can unfold over a long duration of time, leading to an uncertain outcome in the future. Recalling our earlier class discussions of the principal-agent model, asymmetric information, and organizational politics, it is clear that how economic agents perceive one another has a tangible affect on the result of their interactions. One's reputation can be either serve as a powerful tool in exercising organizational influence, or it can be a hindering scar that closes doors.

Instead of using an example from my own experience, I want to share what I was told by a University of Illinois Economics Alumni whom I interviewed a couple months ago. This alum graduated with a bachelor's degree in economics in 1998. After working as a proprietary options trader for Bank of America in the 90's and 2000's, the economic crisis of 2008 prompted his return to school in order to earn an MBA and ultimately transitioning him to being a private financial consultant for Fifth-Tird bank. The interview was conducted for a career preparation course, and my questions reflected that end. I asked about how his education translated into working skills, and I asked what he would say if he had the chance to share his wisdom with his younger self from decades ago. Much of the advice he offered was fairly straightforward and didn't differ much from what any career counselor would say, but something that really impacted me was how much emphasis he put on maintaining a strong reputation and continuous networking efforts. He told me that the "traditional" career path and retirement plan are obsolete for today's economy. He stated, "Most people can't do that anymore - finish college, find a job with a stable company, and work up that company until they can retire on the the three-legged stool of a pension, social security, and mortgage equity." Instead, he adamantly informed me that nowadays people bounce around, and that they must be mobile in order to keep their career going. For this reason, he found that the single most valuable gem of advice he had been able to crystalize throughout the progression of his career was reputation. "HR people speak a whole different language, but always stay networking. Work hard to earn the trust of your managers, coworkers, and clients, and make sure to always maintain your professional reputation."

This alumni, whose career path is not entirely dissimilar from my desired path, really shocked me. Of all the things he could have told me and throughout our discussions of economics, Illinois, and potential careers for economics majors, the core lesson he wanted to convey was about something that seemed so benign. I have yet to work in a professional setting in which my reputation could mean the difference between success and failure, support and rejection. However, it is clear that one's reputation has a lot more power than I had previously thought.

An Agent with Multiple Principals

I can't quite think of an example in my life in which I have acted as the agent of two distinct principals, so I am just going to present a hypothetical situation. In my mind, I see doctors who work for large hospital systems and facing such a dilemma. On one side, they are in fact medical doctors who have sworn to uphold an ethical guiding code for all patients they treat. In this sense doctors are bound as agents of their patients who must uphold the interests of the patient above all outside interests. On the other side, such doctors are also employees of a private organization. As such, they are also agents acting on behalf of the hospital as a whole and must answer to managers and board members. This creates an implicit conflict of interest, since what is best for the hospital in regards to its operations may not necessarily coincide with what is best for individual patients.

So, how can one resolve this issue stemming from the nature of dual principals? I personally do not think there is an easy answer to this, but in order to rectify these conflicting interests I believe that it is crucial to align the interests of the hospital with the interests of the patient. For example, if a radiology doctor knows that his department faces funding cuts if it continues to operate at its current level of profitability, he might be inclined to suggest more extensive and costly procedures for his patients. In order to avoid this dilemma, it is important to separate the mechanisms that govern hospital budgeting from those that affect treatment decisions. It is inevitable that in today's medical environment that doctors must work as part of a hospital or other agglomeration of healthcare services, and seeing as how many such institutions need to operate like a business, it is becoming increasingly difficult to protect the interests of patients. I do not have any first hand experience with healthcare management, however I can see a nearly infinite number of confounding factors such as pharmaceutical interests, insurance concerns, and career advancement. All of these contribute to the gap in the interests between patients and hospitals, forcing doctors to make difficult ethical decisions. Arguably, if it were possible to ensure that doctors would make the most ethical choice regardless of personal or monetary concerns, this would not be an issue. However, it is inevitable that doctors are presented with many conflicting interests and therefore the current system gives them all the power to weigh one principal against another.