This paper assumes that outside investors have imperfect information about firms' profitability and that cash dividends are taxed at a higher rate than capital gains. It is shown that under these conditions, such dividends function as a signal of expected cash flows. By structuring the model so thatfinite-lived investors turn over continuing projects to succeeding generations of investors, we derive a comparative static result that relates the equilibrium level of dividend payout to the length of investors' planning horizons. This paper is a revised version of a chapter of my Ph.D. dissertation at the Sloan School of Management, Massachusetts Institute of Technology (1977). I wish to thank Professors Carliss

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This paper introduces a model of "feedback effect equilibrium", i.e. equilibria in which an asymmetrically informed agent is motivated to communicate its privately known attribute but can do so only through channels or signals which convey directly useful information to competing agents. This revelation to the competition serves to reduce the value of the private information held by the first agent. Models of this kind are of obvious relevance to realistic theories of product or financial market disclosure policies of firms, patenting, and a host of related behavioural and regulatory issues. This model is developed in the context of a set of firms engaged in research and development rivalry, in which the value of privately held and disclosed information arises from its implications for the likelihood and timing of productive innovation.

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_The object of this paper is to survey and synthesize the literature on the regulation of financial intermediaries, including the theoretical framework and also the applied literature on specific regulations such as deposit insurance, capital controls, line of business restrictions, etc.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Oxford University Press is collaborating with JSTOR to digitize, preserve and extend access to The Quarterly Existence conditions for signaling equilibria in which the signal is not exogenously costly are derived for the continuum of classes case. Applications to labor market models based on productivity quotas and time-profiles of wages, and an exploratory model of the "information content" of corporate dividends are discussed. The last application focuses on intertemporal consistency requirements and the role of insider trading observations. I. INTRODUCTIONWe seek to accomplish two goals in this paper. First, we develop and derive the existence conditions for a nondissipative signaling model, and examine the implications of these conditions for a class of labor market contingent contracts that serve to separate, by selfselection, a continuum of worker types with differing productivities that are not distinguishable ex ante. (The term "nondissipative," used in the spirit of the usage in Rothschild-Stiglitz [1976], or Spence's [19771 term "contingent contract" or simply "costless signal," communicates the same notion, that there is no "deadweight" loss, relative to the full information equilibrium, in the signaling equilibrium.) Second, we show that the equilibrium notion developed in the first part is relevant to the modeling of the "information content" of corporate dividends as an ex ante signal of future earnings. The appli-*This paper is a revised and expanded version of a chapter of my Ph.D. thesis at the Sloan School of Management, Massachusetts Institute of Technology [1977]. I would like to thank Professors for helpful discussions. The paper has benefited from the comments of numerous colleagues at seminars at