For decades credit rating agencies were viewed as trusted arbiters of creditworthiness and their ratings as important tools for managing risk. The common narrative is that the value of ratings was compromised by the evolution of the industry to a form where issuers pay for ratings. In this paper we show how credit ratings have value in equilibrium and how reputation insures that, in equilibrium...

The models of microeconomics are famously idealized and have a famously spotty predictive record. Yet recent years have seen some tremendous successes in using these models to construct reliable economic institutions. The focus of this chapter is one such institution, namely, spectrum auctions—now used all over Europe and North America to distribute licenses to telecommunications fi rms. This h...