Limited Partnerships and Reputation Formation

This paper analyzes the optimal quality decision of a producer in a multi-period setting withreputation effects. Using a unique database of returns on real estate limited partnerships(RELPs), we empirically examine alternative theoretical predictions of optimal producerstrategy. In particular, we test whether the producers in our market invest in reputationbuilding by initially selling high quality goods and then lowering quality. Using a variety ofstatistical tests, we find evidence for reputation building, both in the aggregate and forindividual developers