Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/185381
Authors: 
Bester, Helmut
Lang, Matthias
Li, Jianpei
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7183
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
Document Type: 
Working Paper

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