Signaling under Double-Crossing Preferences

ISER DP No. 1103

56 Pages Posted: 30 Nov 2020 Last revised: 15 Oct 2021

See all articles by Chia‐Hui Chen

Chia‐Hui Chen

Kyoto University - Institute of Economic Research

Junichiro Ishida

Osaka University - Institute of Social and Economic Research

Wing Suen

The University of Hong Kong - School of Economics and Finance

Date Written: October 13, 2021

Abstract

This paper provides a general analysis of signaling under double-crossing preferences with a continuum of types. There are natural economic environments where the indifference curves of two types cross twice, such that the celebrated single-crossing property fails to hold. Equilibrium exhibits a threshold type below which types choose actions that are fully revealing and above which they pool in a pairwise fashion, with a gap separating the actions chosen by these two sets of types. The resulting signaling action is quasi-concave in type. We also provide an algorithm to establish equilibrium existence by construction.

Keywords: single-crossing property; countersignaling; local incentive compatibility; global incentive compatibility; pairwise-pooling

JEL Classification: D82, I21

Suggested Citation

Chen, Chia‐Hui and Ishida, Junichiro and Suen, Wing C., Signaling under Double-Crossing Preferences (October 13, 2021). ISER DP No. 1103, Available at SSRN: https://ssrn.com/abstract=3706622 or http://dx.doi.org/10.2139/ssrn.3706622

Chia‐Hui Chen

Kyoto University - Institute of Economic Research ( email )

Yoshida-Honmachi
Sakyo-ku
Kyoto 606-8501
JAPAN

Junichiro Ishida (Contact Author)

Osaka University - Institute of Social and Economic Research ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Wing C. Suen

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
852 2859 1052 (Phone)
852 2548 1152 (Fax)

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