Template-type: ReDif-Paper 1.0
Author-Name: Lee J. 
Author-Name: Müller R.J. 
Author-Name: Vermeulen A.J. 
Author-workplace-name: GSBE
Title: Separating equilibrium in quasi-linear signaling games
Abstract: Using a network approach we provide a characterization of a separating equilibrium for standard signaling games where the senders payoff function is quasi-linear. Given a strategy of the sender, we construct a network where the node set and the length between two nodes are the set of the senders type and the difference of signaling costs, respectively. Construction of a separating equilibrium is then equivalent to constructing the length between two nodes in the network under the condition that the response of the receiver is a node potential.We show that, when the set of the senders type is finite, the collection of separating signaling functions forms a lower bounded lattice. We describe an algorithm to compute separating equilibrium strategies. When the set of the senders type is a real interval, shortest path lengths are antisymmetric and a node potential is unique up to a constant. A strategy of the sender in a separating equilibrium is characterized by some differential equation with a unique solution.Our results can be readily applied to a broad range of economic situations, such as the standard job market signaling model of Spence a model not captured by earlier papers and principal-agent models with production.
Keywords: Noncooperative Games; Asymmetric and Private Information; Mechanism Design; 
Classification-JEL: C72; D82; .
Series:  Research Memorandum
Creation-Date: 2014
Number: 026
File-URL: http://pub.maastrichtuniversity.nl/807b4014-fecc-4e2f-b211-d58a65ac34ad
File-Format: application/pdf
File-Size: 466307
Handle: RePEc:unm:umagsb:2014026