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Good signals gone bad: dynamic signalling with switching efforts

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  • Sander Heinsalu

Abstract

This paper examines signalling when the sender exerts effort and receives benefits over time. Receivers only observe a noisy public signal about the effort, which has no intrinsic value. The modelling of signalling in a dynamic context gives rise to novel equilibrium outcomes. In some equilibria, a sender with a higher cost of effort exerts strictly more effort than his low-cost counterpart. The low-cost type can compensate later for initial low effort, but this is not worthwhile for a high-cost type. The interpretation of a given signal switches endogenously over time, depending on which type the receivers expect to send it. JEL classification: D82, D83, C73. Keywords: Dynamic games, signalling , incomplete information

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  • Sander Heinsalu, 2017. "Good signals gone bad: dynamic signalling with switching efforts," Papers 1707.04699, arXiv.org.
    • Handle: RePEc:arx:papers:1707.04699
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    References listed on IDEAS

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    Cited by:

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    3. Kolb, Aaron M., 2019. "Strategic real options," Journal of Economic Theory, Elsevier, vol. 183(C), pages 344-383.

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    More about this item

    Keywords

    dynamic games; signalling ; incomplete information;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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