IDEAS home Printed from https://ideas.repec.org/a/aea/jeclit/v39y2001i2p432-478.html
   My bibliography  Save this article

Silver Signals: Twenty-Five Years of Screening and Signaling

Author

Listed:
  • John G. Riley

Abstract

The theory of market signaling and screening is a cornerstone of the new economics of information. The last two and a half decades have not only witnessed a series of remarkable theoretical developments but also a wide range of applications. This essay examines the key theoretical issues and explores their use in three major fields: industrial organization, labor, and finance. Considerable emphasis is placed on attempts to test the theory in each of these fields.

Suggested Citation

  • John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
    • Handle: RePEc:aea:jeclit:v:39:y:2001:i:2:p:432-478
    Note: DOI: 10.1257/jel.39.2.432
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jel.39.2.432
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
    4. Lohmann, Susanne, 1993. "A Signaling Model of Informative and Manipulative Political Action," American Political Science Review, Cambridge University Press, vol. 87(2), pages 319-333, June.
    5. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    6. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August.
    7. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    8. Kevin Lang & David Kropp, 1986. "Human Capital Versus Sorting: The Effects of Compulsory Attendance Laws," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 609-624.
    9. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    10. Greg LeBlanc, 1992. "Signalling Strength: Limit Pricing and Predatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 493-506, Winter.
    11. Kyle Bagwell & Garey Ramey, 1988. "Advertising and Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 59-71, Spring.
    12. Ausubel, Lawrence M & Deneckere, Raymond J, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Econometrica, Econometric Society, vol. 57(3), pages 511-531, May.
    13. Acharya, Sankarshan, 1988. " A Generalized Econometric Model and Tests of a Signalling Hypothesis with Two Discrete Signals," Journal of Finance, American Finance Association, vol. 43(2), pages 413-429, June.
    14. Williams, Joseph, 1988. " Efficient Signalling with Dividends, Investment, and Stock Repurchase s," Journal of Finance, American Finance Association, vol. 43(3), pages 737-747, July.
    15. Esther Gal-Or, 1989. "Warranties as a Signal of Quality," Canadian Journal of Economics, Canadian Economics Association, vol. 22(1), pages 50-61, February.
    16. Hjorth-Andersen, Chr., 1991. "Quality indicators : In theory and in fact," European Economic Review, Elsevier, vol. 35(8), pages 1491-1505, December.
    17. Brennan, Michael J & Kraus, Alan, 1987. "Efficient Financing under Asymmetric Information," Journal of Finance, American Finance Association, vol. 42(5), pages 1225-1243, December.
    18. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    19. Allan Drazen & Paul R. Masson, 1994. "Credibility of Policies Versus Credibility of Policymakers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 735-754.
    20. Larry M. Ausubel & Raymond J. Deneckere, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Levine's Working Paper Archive 201, David K. Levine.
    21. Georg Noldeke & Eric van Damme, 1990. "Signalling in a Dynamic Labour Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 1-23.
    22. Heywood, John S., 1994. "How widespread are sheepskin returns to education in the U.S.?," Economics of Education Review, Elsevier, vol. 13(3), pages 227-234, September.
    23. Lewis, Karen K, 1995. "Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?," The Journal of Business, University of Chicago Press, vol. 68(2), pages 185-214, April.
    24. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    25. Goswami, Gautam & Noe, Thomas H & Rebello, Michael J, 1995. "Debt Financing under Asymmetric Information," Journal of Finance, American Finance Association, vol. 50(2), pages 633-659, June.
    26. Ofer, Aharon R & Siegel, Daniel R, 1987. "Corporate Financial Policy, Information, and Market Expectations: An Empirical Investigation of Dividends," Journal of Finance, American Finance Association, vol. 42(4), pages 889-911, September.
    27. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
    28. Gonedes, Nj, 1978. "Corporate Signaling, External Accounting, And Capital-Market Equilibrium - Evidence On Dividends, Income, And Extraordinary Items," Journal of Accounting Research, Wiley Blackwell, vol. 16(1), pages 26-79.
    29. Wiener, Joshua Lyle, 1985. "Are Warranties Accurate Signals of Product Reliability?," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 12(2), pages 245-250, September.
    30. Narayanan, M. P., 1988. "Debt versus Equity under Asymmetric Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(1), pages 39-51, March.
    31. Michael Spence, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 561-572.
    32. Kennan, John & Wilson, Robert, 1989. "Strategic Bargaining Models and Interpretation of Strike Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages 87-130, Supplemen.
    33. Paul Milgrom & Sharon Oster, 1987. "Job Discrimination, Market Forces, and the Invisibility Hypothesis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(3), pages 453-476.
    34. Grossman, Sanford J. & Perry, Motty, 1986. "Sequential bargaining under asymmetric information," Journal of Economic Theory, Elsevier, vol. 39(1), pages 120-154, June.
    35. Hungerford, Thomas & Solon, Gary, 1987. "Sheepskin Effects in the Returns to Education," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 175-177, February.
    36. Ofer, Aharon R. & Natarajan, Ashok, 1987. "Convertible call policies : An empirical analysis of an information-signaling hypothesis," Journal of Financial Economics, Elsevier, vol. 19(1), pages 91-108, September.
    37. Hellwig, Martin, 1987. "Some recent developments in the theory of competition in markets with adverse selection ," European Economic Review, Elsevier, vol. 31(1-2), pages 319-325.
    38. Fredland, J. Eric & Little, Roger D., 1981. "Self-employed workers: Returns to education and training," Economics of Education Review, Elsevier, vol. 1(3), pages 315-337, June.
    39. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    40. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    41. Birger Wernerfelt, 1988. "Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 458-466, Autumn.
    42. Daughety, Andrew F & Reinganum, Jennifer F, 1994. "Asymmetric Information Acquisition and Behavior in Role Choice Models: An Endogenously Generated Signaling Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 795-819, November.
    43. Layard, Richard & Psacharopoulos, George, 1974. "The Screening Hypothesis and the Returns to Education," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 985-998, Sept./Oct.
    44. Nancy A. Lutz, 1989. "Warranties as Signals under Consumer Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 239-255, Summer.
    45. Masson, Paul R, 1995. "Gaining and Losing ERM Credibility: The Case of the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(430), pages 571-582, May.
    46. Weiss, Andrew, 1983. "A Sorting-cum-Learning Model of Education," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 420-442, June.
    47. Kirman, William I. & Masson, Robert T., 1986. "Capacity signals and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 4(1), pages 25-42, March.
    48. Taubman, Paul J & Wales, Terence J, 1973. "Higher Education, Mental Ability, and Screening," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 28-55, Jan.-Feb..
    49. Vickers, John, 1986. "Signalling in a Model of Monetary Policy with Incomplete Information," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 443-455, November.
    50. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
    51. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    52. John, Kose & Williams, Joseph, 1985. "Dividends, Dilution, and Taxes: A Signalling Equilibrium," Journal of Finance, American Finance Association, vol. 40(4), pages 1053-1070, September.
    53. Roberts, John, 1986. "A Signaling Model of Predatory Pricing," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 75-93, Suppl. No.
    54. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
    55. George J. Mailath, 1989. "Simultaneous Signaling in an Oligopoly Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 417-427.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liu, Shuo & Pei, Harry, 2020. "Monotone equilibria in signaling games," European Economic Review, Elsevier, vol. 124(C).
    2. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    3. Jed DeVaro & Michael Waldman, 2012. "The Signaling Role of Promotions: Further Theory and Empirical Evidence," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 91-147.
    4. Sanjiva Prasad & Christopher J. Green & Victor Murinde, 2005. "Company Financial Structure: A Survey and Implications for Developing Economies," Chapters, in: Christopher J. Green & Colin Kirkpatrick & Victor Murinde (ed.), Finance and Development, chapter 12, Edward Elgar Publishing.
    5. Lupton, Sylvie, 2006. "Il était une fois la qualité," MPRA Paper 5, University Library of Munich, Germany.
    6. Dror Etzion & Aviad Pe'er, 2014. "Mixed signals: A dynamic analysis of warranty provision in the automotive industry, 1960–2008," Strategic Management Journal, Wiley Blackwell, vol. 35(11), pages 1605-1625, November.
    7. Daughety, Andrew F & Reinganum, Jennifer F, 1995. "Product Safety: Liability, R&D, and Signaling," American Economic Review, American Economic Association, vol. 85(5), pages 1187-1206, December.
    8. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    9. Etro, Federico, 2017. "Research in economics and game theory. A 70th anniversary," Research in Economics, Elsevier, vol. 71(1), pages 1-7.
    10. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Communicating quality: a unified model of disclosure and signalling," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 973-989, December.
    11. Schmidbauer, Eric & Lubensky, Dmitry, 2018. "New and improved?," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 26-48.
    12. Joseph E. Stiglitz, 2004. "Information and the Change in the Paradigm in Economics, Part 2," The American Economist, Sage Publications, vol. 48(1), pages 17-49, March.
    13. Nakabayashi, Masaki, 2011. "Schooling, employer learning, and internal labor market effect: Wage dynamics and human capital investment in the Japanese steel industry, 1930-1960s," MPRA Paper 30597, University Library of Munich, Germany.
    14. Fulghieri, Paolo & Lukin, Dmitry, 2001. "Information production, dilution costs, and optimal security design," Journal of Financial Economics, Elsevier, vol. 61(1), pages 3-42, July.
    15. Bruno Biais & Thomas Mariotti, 2005. "Strategic Liquidity Supply and Security Design," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 615-649.
    16. Junhong Chu & Pradeep K. Chintagunta, 2009. "Quantifying the Economic Value of Warranties in the U.S. Server Market," Marketing Science, INFORMS, vol. 28(1), pages 99-121, 01-02.
    17. Salvatore Piccolo & Piero Tedeschi & Giovanni Ursino, 2018. "Deceptive Advertising with Rational Buyers," Management Science, INFORMS, vol. 64(3), pages 1291-1310, March.
    18. Koufopoulos, Kostas, 2009. "Optimal securities under adverse selection and moral hazard," Journal of Mathematical Economics, Elsevier, vol. 45(5-6), pages 341-360, May.
    19. Yuan Jiang & Xu Guan & Yao Tang & Simiao Chen, 2022. "Strategic stocking for new products to signal quality information," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(1), pages 65-83, January.
    20. repec:eee:labchp:v:2:y:1986:i:c:p:789-848 is not listed on IDEAS
    21. Committee, Nobel Prize, 2001. "George A. Akerlof, A. Michael Spence, Joseph E. Stiglitz: Markets with Asymmetric Information," Nobel Prize in Economics documents 2001-2, Nobel Prize Committee.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:jeclit:v:39:y:2001:i:2:p:432-478. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.