The Welfare Cost of Signaling

Might the resource costliness of making signals credible be low or negligible? Using a job market as an example, we build a signaling model to determine the extent to which a transfer from an applicant might replace a resource cost as an equilibrium method of achieving signal credibility. Should a ?rm’s announcement of hiring for an open position be believed, the ?rm has an incentive to use a properly-calibrated fee to implement a separating equilibrium. The result is robust to institutional changes, outside options, many ?rms or many applicants and applicant risk aversion, though a suf?ciently risk-averse applicant who is suf?ciently likely to be a high type may lead to a preference for a pooling equilibrium.