Sorting Out the Differences between Signaling and Screening Models

43 Pages Posted: 30 Jul 2000

See all articles by Andrew Weiss

Andrew Weiss

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

andrew murray weiss

affiliation not provided to SSRN

Date Written: November 1990

Abstract

In this paper we analyze games in which there is trade between informed and uninformed players. The informed know the value of the trade (for instance, the value of their productivity in a labor market example); the uninformed only know the distribution of attributes among the informed. The informed choose actions (education levels in the Spence model); the uninformed choose prices (wages of interest rates). We refer to games in which the informed move first as signaling games - they choose actions to signal their type. Games when the uninformed move first are referred to as screening games. We show that in sequential equilibria of screening games same contracts can generate positive profits and others negative profits, while in signaling games all contracts break even. However, if the indifference carves of the informed agents satisfy what roughly would amount to a single crossing property in two dimensions, and some technical conditions hold, then all contacts in the screening game break even, and the set of outcomes of the screening game is a subset of the outcomes of the corresponding signaling game. In the postscript we take a broad view of the strengths and weakness of the approach taken in this and other papers to problems of asymmetric information, and present recommendations for how future research should proceed in this field.

Suggested Citation

Weiss, Andrew M. and weiss, andrew murray, Sorting Out the Differences between Signaling and Screening Models (November 1990). NBER Working Paper No. t0093. Available at SSRN: https://ssrn.com/abstract=232085

Andrew M. Weiss

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-3086 (Phone)
617-353-1188 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrew murray Weiss

affiliation not provided to SSRN

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