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Direct Revelation versus Signalling

Author

Listed:
  • Dan Bernhardt
  • Greg LeBlanc

Abstract

An entrepreneur wishes to communicate private information to investors to secure a desirable financial contract. The entrepreneur can signal project type through its choice of capital structure or can directly reveal sufficient information so that its type is known. Information directly revealed is observed by a rival, who may enter and appropriate some of the project's rents. Conditions under which either of these communication policies are chosen are determined. When local incentive compatibility is sufficient for global incentive compatibility, the authors show that each type either reveals just enough information to credibly communicate its type, or instead reveals no information, and signals.

Suggested Citation

  • Dan Bernhardt & Greg LeBlanc, 1995. "Direct Revelation versus Signalling," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 858-885, November.
    • Handle: RePEc:cje:issued:v:28:y:1995:i:4a:p:858-85
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    Cited by:

    1. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Communicating quality: a unified model of disclosure and signalling," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 973-989, December.
    2. Janssen, Maarten, 2017. "Regulating False Discloure," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168159, Verein für Socialpolitik / German Economic Association.

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