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Unobserved Investment, Signaling, and Welfare

Listed author(s):
  • Gea M. Lee

    ()

    (School of Economics, Singapore Management University, Singapore)

  • Seung Han Yoo

    ()

    (Department of Economics, Korea University, Seoul, Republic of Korea)

We consider a model in which each worker selects a public signal following a private investment on his quality type. Signaling then contributes to social welfare through its influence on the quality choice. We offer a rationale for the argument that there are too many high-type workers in separating equilibrium and the inefficiency can be reduced in pooling equilibrium. On the other hand, pooling equilibrium can generate too few high-type workers and the inefficiency is reduced in separating equilibrium.

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File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w1301.pdf
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Paper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 1301.

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Date of creation: 2013
Date of revision: 2017
Handle: RePEc:iek:wpaper:1301
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  1. Ian Walker & Yu Zhu, 2008. "The College Wage Premium and the Expansion of Higher Education in the UK," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(4), pages 695-709, December.
  2. Kelly Bedard, 2001. "Human Capital versus Signaling Models: University Access and High School Dropouts," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 749-775, August.
  3. Kawai, Keiichi, 2014. "Dynamic market for lemons with endogenous quality choice by the seller," Games and Economic Behavior, Elsevier, vol. 84(C), pages 152-162.
  4. Benjamin E. Hermalin, 2013. "Unobserved investment, endogenous quality, and trade," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 33-55, March.
  5. Goldl├╝cke, Susanne & Schmitz, Patrick W., 2014. "Investments as signals of outside options," Journal of Economic Theory, Elsevier, vol. 150(C), pages 683-708.
  6. Hanming Fang, 2006. "Disentangling The College Wage Premium: Estimating A Model With Endogenous Education Choices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1151-1185, November.
  7. Christopher R. Taber, 2001. "The Rising College Premium in the Eighties: Return to College or Return to Unobserved Ability?," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 665-691.
  8. John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
  9. Wolpin, Kenneth I, 1977. "Education and Screening," American Economic Review, American Economic Association, vol. 67(5), pages 949-958, December.
  10. Daley, Brendan & Green, Brett, 2014. "Market signaling with grades," Journal of Economic Theory, Elsevier, vol. 151(C), pages 114-145.
  11. John H. Tyler & Richard J. Murnane & John B. Willett, 2000. "Estimating the Labor Market Signaling Value of the GED," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 431-468.
  12. Flavio Cunha & Fatih Karahan & Ilton Soares, 2011. "Returns to Skills and the College Premium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 39-86, August.
  13. Riley, John G, 1979. "Testing the Educational Screening Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 227-252, October.
  14. Hanming Fang, 2001. "Social Culture and Economic Performance," American Economic Review, American Economic Association, vol. 91(4), pages 924-937, September.
  15. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
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