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Spence Revisited: Signaling and the Allocation of Individuals to Jobs

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  • Timothy Perri

Abstract

Spence (1974a) considered a variant of his signaling model in which there are two types of jobs, and in which signaling can increase wealth by improving the allocation of individuals to jobs. Using results in signaling games since Spence’s work---the Riley outcome (Riley, 1979), the intuitive criterion (Cho and Kreps, 1987), and undefeated equilibrium (Mailath et al., 1993)---it is possible to be more precise than Spence was in determining when signaling would occur and what the effect of signaling on wealth would be. We find the likelihood of efficient signaling, inefficient signaling, and pooling equilibria depends on the fraction of more able individuals in the population. With non-trivial gains from job allocation, inefficient signaling does not appear to be the most likely outcome. Key Words: signaling, pooling, Riley outcome, intuitive criterion, and undefeated equilibrium

Suggested Citation

  • Timothy Perri, 2011. "Spence Revisited: Signaling and the Allocation of Individuals to Jobs," Working Papers 11-16, Department of Economics, Appalachian State University.
    • Handle: RePEc:apl:wpaper:11-16
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    File URL: http://econ.appstate.edu/RePEc/pdf/wp1116.pdf
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    References listed on IDEAS

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    1. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August.
    2. Rosen, Sherwin, 2007. "Studies in Labor Markets," National Bureau of Economic Research Books, University of Chicago Press, number 9780226726304, April.
    3. Perri, T. J., 1995. "Testing for ability when job assignment is a signal," Labour Economics, Elsevier, vol. 2(1), pages 106-107, March.
    4. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    5. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 179-221.
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    Cited by:

    1. Timothy Perri, 2013. "The More Abstract the Better? Raising Education Cost for the Less Able when Education is a Signal," Working Papers 13-08, Department of Economics, Appalachian State University.
    2. Timothy Perri, 2016. "Does signalling solve the lemons problem?," Applied Economics Letters, Taylor & Francis Journals, vol. 23(4), pages 227-229, March.
    3. Perri, Timothy, 2016. "Lemons & Loons," Review of Behavioral Economics, now publishers, vol. 3(2), pages 173-188, July.

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    More about this item

    Keywords

    signaling; pooling; riley outcome; intuitive criterion; and undefeated equilibrium;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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