Signalling in a dynamic labor market
This paper analyzes a multiperiod version of the Spence job market signaling model in which workers cannot commit to an education choice and firms make wage offers at any point in time. The dynamic competition combined with the incomplete information yields a multiplicity of sequential equilibria, including ones that sustain implicit collusion, even though the length of the game is finite. Emphasis is placed on equilibria that satisfy the "independence of never weak best response" criterion of E. Kohlberg and J. F. Mertens (1986). It is shown that in the limit, as the time between offers tends to zero, any such equilibrium results (in expectation) in the unique stable outcome of the static Spence model. Copyright 1990 by The Review of Economic Studies Limited.
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