Signaling with Private Monitoring

Gonzalo Cisternas and Aaron Kolb

Papers from arXiv.org

Abstract: We study dynamic signaling when the informed party does not observe the signals generated by her actions. A long-run player signals her type continuously over time to a myopic second player who privately monitors her behavior; in turn, the myopic player transmits his private inferences back through an imperfect public signal of his actions. Preferences are linear-quadratic and the information structure is Gaussian. We construct linear Markov equilibria using belief states up to the long-run player's $\textit{second-order belief}$. Because of the private monitoring, this state is an explicit function of the long-run player's past play. A novel separation effect then emerges through this second-order belief channel, altering the traditional signaling that arises when beliefs are public. Applications to models of leadership, reputation, and trading are examined.

Date: 2020-07
New Economics Papers: this item is included in nep-gth and nep-mic
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http://arxiv.org/pdf/2007.15514 Latest version (application/pdf)

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Working Paper: Signaling with Private Monitoring (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2007.15514

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