A model of mixed signals with applications to countersignalling

Abstract

We develop a job-market signalling model where signals convey two pieces of information. This model is employed to study countersignalling (signals nonmonotonic in ability) and the GED exam. A result of the model is that countersignalling is more likely to occur in jobs that require a combination of skills that differs from the combination used in the schooling process. The model also produces testable implications consistent with evidence on the GED: (i) it signals both high cognitive and low noncognitive skills and (ii) it does not affect wages. Electronic copy available at: http://ssrn.com/abstract=2330806 AbstractWe develop a job-market signaling model where signals may convey two pieces of information. This model is employed to study the GED exam and countersignaling (signals non-monotonic in ability). A result of the model is that countersignaling is more expected to occur in jobs that require a combination of skills that differs from the combination used in the schooling process. The model also produces testable implications consistent with evidence on the GED: (i) it signals both high cognitive and low non-cognitive skills and (ii) it does not affect wages. Additionally, it suggests modifications that would make the GED a more effective signal.

When is multidimensional screening a convex program?

“…The challenge of resolving the multidimensional version X, Y ⊂ R n of this archetypal problem in microeconomic theory has been highlighted by many authors [39] [65] [44] [51] [7]. When only one side of the market displays multidimensional types, analyses have been carried out by Mirman and Sibley [41], Roberts [47] and Spence [60], who allow multidimensional products, and by Laffont, Maskin and Rochet [27], Araujo, Gottlieb and Moreira [2], and Deneckere and Severinov [16] who model two-dimensional agents choosing from a one-dimensional product line. When both sides of the market display multidimensional types, existence of an equilibrium has been established by Monteiro and Page [45] and by Carlier [13], who employed a variational formulation; see also the control-theoretic approach of Basov [6] [7].…”

Incentives and Prosocial Behavior

“…Other related papers include Ronit Bodner and Drazen Prelec (2003) and Bénabou and Tirole (2004a) on self-signaling, Akerlof and Rachel E. Kranton (2000) on identity, Kjell Arne Brekke, Snorre Kverndokk, and Karine Nyborg (2003) on moral motivation, Maarten Janssen and Ewa Mendys-Kamphorst (2004) on rewards and the evolution of social norms, and Wolfgang Pesendorfer (1995) and Laurie Simon Bagwell and Bernheim (1996) on ostentatious consumptions as signaling devices. Our work is also technically related to a recent literature on signals that convey diverging news about different underlying characteristics (Aloisio Pessoa de Araújo et al (2004), Philipp Sadowski (2004), David Austen-Smith and Roland G. Fryer (2005). …”

The Economics and Psychology of Personality Traits

“…An example of how economic theory can be changed in a fundamental way by learning lessons from personality psychology is the recent work on multidimensional screening that adds personality skills to traditional screening and signaling models and produces a fundamental reformulation of signaling theory (Araujo, Gottlieb, and Moreira, 2007).…”