Dynamic Noisy Signaling

Sander Heinsalu

American Economic Journal: Microeconomics, 2018, vol. 10, issue 2, 225-49

Abstract: This article studies costly signaling. The signaling effort is chosen in multiple periods and observed with noise. The signaler benefits from the belief of the market, not directly from the effort or the signal. Optimal signaling behavior in time-varying environments trades off effort-smoothing and influencing belief exactly when it yields a return. If the return to signaling first increases over time and then decreases, then the optimal effort rises slowly, reaches its maximum before the return does, and declines quickly. Advertising data displays this pattern.

JEL-codes: C73 D12 D82 D83 M31 M37 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/mic.20160336
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Citations: View citations in EconPapers (6)

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