A Dynamic Model of Equilibrium Selection in Signaling Markets

Georg Noeldeke and Larry Samuelson
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Georg Noeldeke: Department of Economics, University of Bonn
Larry Samuelson: Department of Economics, University of Wisconsin
Authors registered in the RePEc Author Service: Georg Nöldeke

No 27, Economics Series from Institute for Advanced Studies

Abstract: In his work on market signaling, Spence proposed a dynamic model of a signaling market in which a buyer revises prices in light of experience and sellers choose utility-maximizing signals given these prices. Spence also suggested that subjecting the dynamic process to rare perturbations might allow one to choose between multiple equilibria. This paper examines the effect of introducing such perturbations into Spence's dynamic model. We find that refinement results arise naturally from the dynamic analysis. In a broad class of markets, our model selects a separating equilibrium outcome if and only if the equilibrium outcome satisfies a version of the undefeated equilibrium concept, whereas a pooling equilibrium outcome is selected if and only if the equilibrium outcome is both undefeated and satisfies D1.

Keywords: Equilibrium Selection; Evolution; Signaling (search for similar items in EconPapers)
JEL-codes: C70 C72 D82 D83 (search for similar items in EconPapers)
Pages: 32 pages
Date: 1996-02
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https://irihs.ihs.ac.at/id/eprint/889 First version, 1996 (application/pdf)

Related works:
Journal Article: A Dynamic Model of Equilibrium Selection in Signaling Markets (1997)
Working Paper: A Dynamic Model of Equilibrium Selection in Signaling Markets (1996)
Working Paper: A Dynamic Model of Equilibrium Selection in Signaling Markets (1995)
Working Paper: A Dynamic Model of Equilibrium Selection In Signaling Markets
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