Endogenous Vindication: Reputation and Effort in Expert Advice

Abstract

Does making advice cheaper to implement increase the supply of advice? We study an expert who can release a favorable certificate to a sequence of clients. Implementation requires the certificate, and its outcome depends on client effort. The expert values client surplus and career income from routine employment; ability is unknown to both the expert and the public. A lower fixed implementation cost weakly increases both advice and client surplus. A lower marginal effort cost can have the opposite effect: greater effort makes failure more revealing and can induce the expert to withhold advice permanently. We establish this reversal for every discount factor on an open family with smooth income utility with constant absolute risk aversion. At a common initial reputation, cheaper effort then eliminates public learning and client surplus. The reversal is impossible when the effort rule is held fixed across the same cost change. Rare outside reports preserve the discounted client-surplus reversal, although recurrent informative reports restore eventual learning. Additional shape restrictions yield a reputation cutoff; without them, advice can be disconnected and even success can stop further evaluation.