Signaling with Pre-Investment and Market Design
2015
Signaling, in regard to its role of information transmission, has been well under- stood by existing literature, but its eect on the investment decision of the content has not been thoroughly studied. This paper analyzes a model of pre-investment and subsequent signaling to reconsider the social value of signaling. We …nd that signal- ing becomes socially bene…cial with the pre-investment. We also identify conditions under which there are too many high-type workers in a separating equilibrium from a social-welfare perspective and as a result, the social planner implements a pooling
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