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Signaling, network externalities, and subsidies

Author

Listed:
  • Bruno Borger

    (University of Antwerp)

  • Amihai Glazer

    (University of California, Irvine)

Abstract

A signal may be more effective the greater the number of people who use the same signal, thereby creating a network externality and potentially generating multiple equilibria. A subsidy to the signal can increase efficiency, and the signalers may benefit from the subsidy even if they pay taxes to finance it. But people who benefit from the signal may oppose too large a subsidy, because a large subsidy could destroy the signaling value.

Suggested Citation

  • Bruno Borger & Amihai Glazer, 2016. "Signaling, network externalities, and subsidies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 798-811, October.
    • Handle: RePEc:kap:itaxpf:v:23:y:2016:i:5:d:10.1007_s10797-015-9384-x
    DOI: 10.1007/s10797-015-9384-x
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Signaling; Network externalities; Subsidies;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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