Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284747 
Year of Publication: 
2021
Citation: 
[Journal:] The RAND Journal of Economics [ISSN:] 1756-2171 [Volume:] 52 [Issue:] 4 [Year:] 2021 [Pages:] 859-883
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
We analyze a competitive labor market in which workers signal their productivities through education, and firms have the option of auditing to learn workers' productivities. Audits are costly and non‐contractible. We characterize the trade‐offs between signaling by workers and costly auditing by firms. Auditing 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 results feature new auditing patterns and explain empirical observations in labor economics like wage differentials and comparative statics of education choices. Our analysis applies also to other signaling problems, for example, the financial structure of firms, warranties, and initial public offerings.
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.