The Welfare Cost of Signaling

Fan Yang and Ronald Harstad

Games, 2017, vol. 8, issue 1, 1-21

Abstract: Might the resource costliness of making signals credible be low or negligible? Using a job market as an example, we build a signaling model to determine the extent to which a transfer from an applicant might replace a resource cost as an equilibrium method of achieving signal credibility. Should a ?rm’s announcement of hiring for an open position be believed, the ?rm has an incentive to use a properly-calibrated fee to implement a separating equilibrium. The result is robust to institutional changes, outside options, many ?rms or many applicants and applicant risk aversion, though a suf?ciently risk-averse applicant who is suf?ciently likely to be a high type may lead to a preference for a pooling equilibrium.

Keywords: costly signaling; social cost of signaling; asymmetric information; separating equilibrium (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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