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Does Signaling Solve the Lemon’s Problem?

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  • Timothy Perri

Abstract

Maybe. Lemon’s and signaling models generally deal with different welfare problems, the former with withdrawal of high quality sellers, and the latter with socially wasteful signals. However, with asymmetric information, high productivity workers may not (absent signaling) be employed where they are valued the most. If one’s productivity is known in alternative employment, signaling that overcomes the lemon’s problem at a cost will only occur if it increases welfare. If individual productivity is unknown in alternative employment, again signaling may occur and will overcome the lemon’s problem, but it may lower welfare. Key Words: Lemons, signaling, and sorting

Suggested Citation

  • Timothy Perri, 2013. "Does Signaling Solve the Lemon’s Problem?," Working Papers 13-13, Department of Economics, Appalachian State University.
    • Handle: RePEc:apl:wpaper:13-13
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    File URL: http://econ.appstate.edu/RePEc/pdf/wp1313.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.
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    5. Timothy Perri, 2011. "Spence Revisited: Signaling and the Allocation of Individuals to Jobs," Working Papers 11-16, Department of Economics, Appalachian State University.
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    More about this item

    Keywords

    lemons; signaling; and sorting;
    All these keywords.

    JEL classification:

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

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