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Signaling and Opitmal Sorting

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  • Tim Perri

Abstract

I consider education as a discrete signal of inherent ability. More able individuals are more productive in the primary sector, and less able individuals are more productive in the secondary sector. If, absent signaling, all would be in the secondary sector, signaling increases but never maximizes welfare. When all would be in the primary sector without signaling, signaling may increase welfare. Interestingly, signaling is more likely to increase welfare the greater is productivity in the secondary sector, and, possibly, the lower is productivity in the primary sector. Excessive signaling occurs by less able individuals, which is consistent with recent increased undergraduate enrollment in the U.S. If education increases human capital, total welfare likely increases. However, unless all invest in education, the more human capital is increased by education, the greater the number of individuals who over-invest in education. Key Words: Signaling, Sorting

Suggested Citation

  • Tim Perri, 2016. "Signaling and Opitmal Sorting," Working Papers 16-07, Department of Economics, Appalachian State University.
    • Handle: RePEc:apl:wpaper:16-07
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    File URL: http://econ.appstate.edu/RePEc/pdf/wp1607.pdf
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    Cited by:

    1. Maurício Benegas & Márcio Veras Corrêa, 2020. "Educational supply policies: distortions and labor market performance," Journal of Economics, Springer, vol. 129(3), pages 203-239, April.
    2. Jesús Andrés Burbano-Gómez & Mónica María Sinisterra-Rodríguez, 2023. "Effects of informative advertising on the formation of market structures," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(2), pages 445-486, June.

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    More about this item

    Keywords

    signaling; sorting;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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