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Unobserved Investment, Signaling, and Welfare

Author

Listed:
  • Gea M. Lee

    (School of Economics, Singapore Management University, Singapore)

  • Seung Han Yoo

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

Abstract

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.

Suggested Citation

  • Gea M. Lee & Seung Han Yoo, 2013. "Unobserved Investment, Signaling, and Welfare," Discussion Paper Series 1301, Institute of Economic Research, Korea University, revised 2017.
    • Handle: RePEc:iek:wpaper:1301
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w1301.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Investment; Endogenous quality; Signaling; Welfare;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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