Spence Revisited: Signaling and the Allocation of Individuals to Jobs

Tim Perri

No 11-16, Working Papers from Department of Economics, Appalachian State University

Abstract: Spence (1974a) considered a variant of his signaling model in which there are two types of jobs, and in which signaling can increase wealth by improving the allocation of individuals to jobs. Using results in signaling games since Spence’s work---the Riley outcome (Riley, 1979), the intuitive criterion (Cho and Kreps, 1987), and undefeated equilibrium (Mailath et al., 1993)---it is possible to be more precise than Spence was in determining when signaling would occur and what the effect of signaling on wealth would be. We find the likelihood of efficient signaling, inefficient signaling, and pooling equilibria depends on the fraction of more able individuals in the population. With non-trivial gains from job allocation, inefficient signaling does not appear to be the most likely outcome. Key Words: signaling, pooling, Riley outcome, intuitive criterion, and undefeated equilibrium

JEL-codes: D82 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-lab and nep-mic
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Citations: View citations in EconPapers (3)

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