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Signaling to experts


Kurlat, Pablo; Scheuer, Florian (2020). Signaling to experts. NBER Working Papers 23817, National Bureau of Economic Research.

Abstract

We study competitive equilibria in a signaling economy with heterogeneously informed buyers. In terms of the classic Spence (1973) model of job market signaling, firms have access to direct but imperfect information about worker types, in addition to observing their education. Firms can be ranked according to the quality of their information, i.e. their expertise. In equilibrium, some high-type workers forgo signaling and are hired by better informed firms, which make positive profits. Workers’ education decisions and firms’ use of their expertise are strategic complements, allowing for multiple equilibria that can be Pareto ranked. We characterize wage dispersion and the extent of signaling as a function of the distribution of expertise among firms. Our model can also be applied to a variety of other signaling problems, including securitization, corporate financial structure, insurance markets, or dividend policy.

Abstract

We study competitive equilibria in a signaling economy with heterogeneously informed buyers. In terms of the classic Spence (1973) model of job market signaling, firms have access to direct but imperfect information about worker types, in addition to observing their education. Firms can be ranked according to the quality of their information, i.e. their expertise. In equilibrium, some high-type workers forgo signaling and are hired by better informed firms, which make positive profits. Workers’ education decisions and firms’ use of their expertise are strategic complements, allowing for multiple equilibria that can be Pareto ranked. We characterize wage dispersion and the extent of signaling as a function of the distribution of expertise among firms. Our model can also be applied to a variety of other signaling problems, including securitization, corporate financial structure, insurance markets, or dividend policy.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:D4, D5, D8, G1, G2, H2, J2, J3, L1, L2, M3, M50
Language:English
Date:January 2020
Deposited On:26 Jan 2018 13:41
Last Modified:25 Feb 2020 14:14
Series Name:NBER Working Papers
Number of Pages:65
Additional Information:Revised version
OA Status:Hybrid
Publisher DOI:https://doi.org/10.3386/w23817
Related URLs:http://www.nber.org/papers/w23817 (Publisher)
https://www.econ.uzh.ch/en/people/faculty/scheuer/research.html (Author)

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