Signaling to Experts

67 Pages Posted: 20 Sep 2017

See all articles by Pablo D. Kurlat

Pablo D. Kurlat

Stanford University - Department of Economics

Florian Scheuer

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: September 2017

Abstract

We study competitive equilibrium in a signaling economy with heterogeneously informed buyers. In terms of the classic Spence (1973) model of job market signaling, firms have access to direct but imperfect information about worker types, in addition to observing their education. Firms can be ranked according to the quality of their information, i.e. their expertise. In equilibrium, some high type workers forgo signaling and are hired by better informed firms, who make positive profits. Workers' education decisions and firms' use of their expertise are strategic complements, allowing for multiple equilibria. We characterize wage dispersion and the extent of signaling as a function of the distribution of expertise among firms. The market can create insufficient or excessive incentives for firms to acquire information, and we provide a formula to measure this inefficiency. Our model can also be applied to a variety of other signaling problems, including securitization, corporate financial structure, insurance markets, or dividend policy.

Suggested Citation

Kurlat, Pablo D. and Scheuer, Florian, Signaling to Experts (September 2017). CEPR Discussion Paper No. DP12293, Available at SSRN: https://ssrn.com/abstract=3039018

Pablo D. Kurlat (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Florian Scheuer

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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