signaling

Credible Signaling via Transfers, Job Application Fees

How low might be the resource costliness of making signals credible? Using a job market as an example, We build a signaling model to determine the extent to which a transfer from an applicant might replace a resource cost as an equilibrium method of achieving signal credibility. As long as a firm’s claim to be hiring for an open position is credible, and profitability of the hiring process per se is limited to an application fee, the firm has an incentive to use the properly calibrated fee to implement a separating equilibrium.

Estate Taxation and Human Capital with Information Externalities

This paper investigates the effects of estate taxation when firms cannot directly observe worker skill levels. Imperfect labor market signaling gives rise to an information externality that causes workers to free-ride off of others' human capital acquisition. Inherited wealth exacerbates the information externality because risk-averse workers with larger inheritances exert less effort to acquire skills. By reducing these inheritances, an estate tax induces greater skill acquisition effort, resulting in a higher number of skilled workers, and in many cases, increased wages and output.

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