Template-type: ReDif-Paper 1.0
Author-Name: Lee, J.
Author-Name: Müller, R.J.
Author-workplace-name: Quantitative Economics
Author-Name: Vermeulen, A.J.
Author-workplace-name: Quantitative Economics
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 sender's 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 sender's 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.<br/><br/>We show that, when the set of the sender's 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 sender's 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.<br/><br/>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.<br/>
Series: GSBE Research Memoranda
Creation-Date: 20140101
Number: 026
File-URL: https://cris.maastrichtuniversity.nl/ws/files/1092224/guid-807b4014-fecc-4e2f-b211-d58a65ac34ad-ASSET1.0.pdf
File-Format: application/pdf
File-Size: 465345
Handle: Repec:unm:umagsb:2014026
DOI: 10.26481/umagsb.2014026