Overeagerness

Philipp Sadowski

No 10-82, Working Papers from Duke University, Department of Economics

Abstract: In the terminology of classical signaling models we capture the impression that high types may send lower signals than low types in order not to appear too desperate. Overeagerness of low types or conversely modesty of high types can be described by our model. In contrast to the counter-signaling literature we require only a noisy one dimensional signal, where very low signal manifestations force types to execute their outside option. The central assumption is that high types are not only more productive when working for a firm, but that they also have a higher opportunity cost of doing so. Low types are then eager not to end up with their bad outside option as a result of a low signal manifestation. High types may exploit this eagerness by using lower signals (and hence a higher risk to end up with their own better outside option) in order to be distinguishable. Type dependent signaling cost is incorporated. It allows predicting when overeagerness should occur and when the classical signaling effect should dominate.

Pages: 30
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:10-82

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