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Spence Revisited: Signaling and the Allocation of Individuals to Jobs

  • Timothy Perri

Spence (1974a) considered a variant of his signaling model in which there are two types of jobs, and in which signaling can increase wealth by improving the allocation of individuals to jobs. Using results in signaling games since Spence’s work---the Riley outcome (Riley, 1979), the intuitive criterion (Cho and Kreps, 1987), and undefeated equilibrium (Mailath et al., 1993)---it is possible to be more precise than Spence was in determining when signaling would occur and what the effect of signaling on wealth would be. We find the likelihood of efficient signaling, inefficient signaling, and pooling equilibria depends on the fraction of more able individuals in the population. With non-trivial gains from job allocation, inefficient signaling does not appear to be the most likely outcome. Key Words: signaling, pooling, Riley outcome, intuitive criterion, and undefeated equilibrium

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File URL: http://econ.appstate.edu/RePEc/pdf/wp1116.pdf
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Paper provided by Department of Economics, Appalachian State University in its series Working Papers with number 11-16.

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Date of creation: 2011
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Handle: RePEc:apl:wpaper:11-16
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  1. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
  2. Perri, T. J., 1995. "Testing for ability when job assignment is a signal," Labour Economics, Elsevier, vol. 2(1), pages 106-107, March.
  3. 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.
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