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Signal Facilitation: A Policy Response to Asymmetric Information

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  • Cooper, Thomas E

Abstract

In cases of asymmetric information, policymakers sometimes want to make informed agents share their private information. One policy response to this situation is signal facilitation, altering the environment to encourage signaling. This article illustrates signal facilitation in the context of a competitive used-car market. Sellers may determine quality and reveal it through warranties. Signal facilitation compares favorably to a policy of mandatory disclosure because car dealers can refuse to test and signal if the cost is excessive. Also, this policy permits dealers to select less costly, less revealing alternatives that may enhance social welfare. Copyright 1992 by University of Chicago Press.

Suggested Citation

  • Cooper, Thomas E, 1992. "Signal Facilitation: A Policy Response to Asymmetric Information," The Journal of Business, University of Chicago Press, vol. 65(3), pages 431-450, July.
    • Handle: RePEc:ucp:jnlbus:v:65:y:1992:i:3:p:431-50
    DOI: 10.1086/296578
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    Cited by:

    1. Regina Michalski-Karl & Silvia Pernsteiner & Michaela Schaffhauser-Linzatti, 2009. "Signaling Public Private Partnership Activities: Reporting Behavior Within Annual Reports," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 15(2), pages 178-185, May.
    2. repec:kap:iaecre:v:15:y:2009:i:2:p:178-185 is not listed on IDEAS
    3. Blackstone, Erwin A. & Buck, Andrew J. & Hakim, Simon & Spiegel, Uriel, 2008. "Market segmentation in child adoption," International Review of Law and Economics, Elsevier, vol. 28(3), pages 220-225, September.

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