Unobserved Investment, Signaling, and Welfare
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.
|Date of creation:||2013|
|Date of revision:||2017|
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