Signaling versus Costly Information Acquisition

Arbeitspapier

In Spence’s (1973) signaling by education model and in many of its extensions, firms can only infer workers’ productivities from their education choices. In reality, firms also use sophisticated pre–employment auditing to learn workers’ productivities. We characterize the trade–offs between signaling by workers and costly information acquisition by firms. Information acquisition is always associated with (partial) pooling of worker types, and education is used as a signal only if relatively few workers have low productivity. Our analysis applies also to other signaling problems, e.g. the financial structure of firms, warranties, and initial public offerings.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7183

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Economics of Contract: Theory
• Subject: signaling ; information acquisition ; auditing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bester, Helmut ; Lang, Matthias ; Li, Jianpei
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/185381
• Last update: 10.03.2025, 11:42 AM CET