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Does Signaling Solve the Lemon’s Problem?

Tim Perri

No 13-13, Working Papers from Department of Economics, Appalachian State University

Abstract: Maybe. Lemon’s and signaling models generally deal with different welfare problems, the former with withdrawal of high quality sellers, and the latter with socially wasteful signals. However, with asymmetric information, high productivity workers may not (absent signaling) be employed where they are valued the most. If one’s productivity is known in alternative employment, signaling that overcomes the lemon’s problem at a cost will only occur if it increases welfare. If individual productivity is unknown in alternative employment, again signaling may occur and will overcome the lemon’s problem, but it may lower welfare. Key Words: Lemons, signaling, and sorting

JEL-codes: D82 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cta and nep-mic
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Journal Article: Does signalling solve the lemons problem? (2016) Downloads
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