The Welfare Cost of Signaling
1
Economics area, New York University Shanghai, 1555 Century Ave, Pudong, Shanghai 200122, China
2
Economics Department, University of Missouri, 901 University Avenue, Columbia, MO 65211-1140, USA
*
Author to whom correspondence should be addressed.
Games 2017, 8(1), 11; https://doi.org/10.3390/g8010011
Received: 17 August 2016 / Accepted: 18 January 2017 / Published: 9 February 2017
(This article belongs to the Special Issue Epistemic Game Theory and Logic)
Might the resource costliness of making signals credible be low or negligible? Using a job market as an example, we build a signaling model to determine the extent to which a transfer from an applicant might replace a resource cost as an equilibrium method of achieving signal credibility. Should a firm’s announcement of hiring for an open position be believed, the firm has an incentive to use a properly-calibrated fee to implement a separating equilibrium. The result is robust to institutional changes, outside options, many firms or many applicants and applicant risk aversion, though a sufficiently risk-averse applicant who is sufficiently likely to be a high type may lead to a preference for a pooling equilibrium.
View Full-Text
Keywords:
costly signaling; social cost of signaling; asymmetric information; separating equilibrium
▼
Show Figures
Figure 1
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited
MDPI and ACS Style
Yang, F.; Harstad, R.M. The Welfare Cost of Signaling. Games 2017, 8, 11.
Show more citation formats
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.
