The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Signalling and Screening

  • Johannes Hörner
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2097

Abstract

Signalling refers to any activity by a party designed to influence the perception and thereby the actions of other parties. This presupposes that one market participant holds private information that for some reason cannot be verifiably disclosed, and which affects the other participants’ incentives. The classic example of market signalling is due to Spence. Consider a labour market in which firms know less than workers about their innate productivity. Under certain conditions, some workers may wish to signal their ability to potential employers, and do so by choosing a level of education that distinguishes them from workers with lower productivity.

Keywords

Asymmetric information Introductory pricing Limit pricing Multiple equilibria Political competition Pooling equilibrium Screening Separating equilibrium Signalling Single-crossing conditions Signalling and screening Uniqueness Warranties 

JEL Classifications

C7 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Johannes Hörner
    • 1
  1. 1.