Signaling with Two Correlated Characteristics
This paper generalizes the canonical feature of signaling models that signaling costs are negatively correlated with productive capabilities. A worker has two characteristics - signaling cost (low/high) and productive capability (low/high) - each combination of which can be realized with positive probability. The main results identify one key condition to guarantee the existence of a unique (partially) separating equilibrium. This finding has new implications for the role of education or a pre-signaling stage that induces the condition to hold.
|Date of creation:||2016|
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