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Endogenous Quality Choice, 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 endogenously selects his own type through a private investment decision and selects a public signal in the labor market. 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 from a welfare perspective, identifying circumstances under which separating equilibrium generates too many high-type workers while having to use the incentive-compatible signal and treat high-type workers differently in the market. The inefficiency can then be reduced in pooling 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: 2016
Handle: RePEc:iek:wpaper:1301
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  1. 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.
  2. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
  3. 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.
  4. Wolpin, Kenneth I, 1977. "Education and Screening," American Economic Review, American Economic Association, vol. 67(5), pages 949-958, December.
  5. Riley, John G, 1979. "Testing the Educational Screening Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 227-252, October.
  6. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
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