Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/180888
Authors: 
Bester, Helmut
Lang, Matthias
Li, Jianpei
Year of Publication: 
2018
Series/Report no.: 
Diskussionsbeiträge 2018/11
Abstract: 
In Spence's (1973) signaling by education model and in many of its extensions, firms can only infer workers' productivities from their education choices. In reality, firms also use sophisticated pre-employment auditing to learn workers' productivities. We characterize the trade-offs between signaling by workers and costly information acquisition by firms. Information acquisition is always associated with (partial) pooling of worker types, and education is used as a signal only if relatively few workers have low productivity. Our analysis applies also to other signaling problems, e.g. the financial structure of firms, warranties, and initial public offerings.
Subjects: 
Signaling
Information Acquisition
Auditing
JEL: 
D82
D86
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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