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Signalling to Experts

Author

Listed:
  • Pablo Kurlat
  • Florian Scheuer

Abstract

We study competitive equilibria in a signalling economy with heterogeneously informed buyers. In terms of the classic Spence (1973, The Quarterly Journal of Economics, 87, 355—374) model of job market signalling, firms have access to direct but imperfect information about worker types, in addition to observing their education. Firms can be ranked according to the quality of their information, i.e., their expertise.In equilibrium, some high-type workers forgo signalling and are hired by better informed firms, which make positive profits. Workers’ education decisions and firms’ use of their expertise are strategic complements, allowing for multiple equilibria that can be Pareto ranked. We characterize wage dispersion and the extent of signalling as a function of the distribution of expertise among firms.Our model can also be applied to a variety of other signalling problems, including securitization, corporate financial structure, insurance markets, or dividend policy.

Suggested Citation

  • Pablo Kurlat & Florian Scheuer, 2021. "Signalling to Experts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(2), pages 800-850.
    • Handle: RePEc:oup:restud:v:88:y:2021:i:2:p:800-850.
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    File URL: http://hdl.handle.net/10.1093/restud/rdaa068
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    Citations

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    Cited by:

    1. Helmut Bester & Matthias Lang & Jianpei Li, 2021. "Signaling versus Auditing," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 859-883, December.
    2. Tobias Dieler & Sonny Biswas & Giacomo Calzolari & Fabio Castiglionesi, 2023. "Asset Trade, Real Investment, and a Tilting Financial Transaction Tax," Management Science, INFORMS, vol. 69(4), pages 2401-2424, April.
    3. Ursprung, Heinrich, 2019. "Endogenous maternity allowances as exemplified by academic promotion standards," Labour Economics, Elsevier, vol. 60(C), pages 1-11.
    4. Dosis, Anastasios, 2018. "On signalling and screening in markets with asymmetric information," Journal of Mathematical Economics, Elsevier, vol. 75(C), pages 140-149.
    5. Mehmet Ekmekci & Nenad Kos, 2020. "Signaling Covertly Acquired Information," Working Papers 658, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    6. Chen, Yu & Doyle, Matthew & Gonzalez, Francisco M., 2024. "Wages as signals of worker mobility," Theoretical Economics, Econometric Society, vol. 19(1), January.
    7. Ekmekci, Mehmet & Kos, Nenad, 2023. "Signaling covertly acquired information," Journal of Economic Theory, Elsevier, vol. 214(C).
    8. Aleksei Smirnov & Egor Starkov, 2022. "Bad News Turned Good: Reversal under Censorship," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 506-560, May.

    More about this item

    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General

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