WEALTH AS A SIGNAL IN THE SEARCH MODEL OF MONEY *

Tsunao Okumura

International Economic Review, 2006, vol. 47, issue 1, 87-106

Abstract: This article investigates the possibility that wealth (holdings of money) serves as a signal of the ability to produce high-quality products for agents who cannot directly observe the quality of the products. A producer's wealth may advertise past success in selling products to agents who knew the producer's ability and thus signal its ability. This analysis shows that such signaling effects may arise in equilibrium and may lead to more unequal distributions of wealth and lower welfare than would otherwise arise. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2006
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Working Paper: Wealth as a Signal in the Search Model of Money (2005)
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