Signaling under Double-Crossing Preferences: The Case of Discrete Types

ISER DP No. 1166

35 Pages Posted: 29 Mar 2022

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

Multiple version iconThere are 2 versions of this paper

Date Written: March 3, 2022

Abstract

The class of double-crossing preferences, where signaling is cheaper for higher types than for lower types at low signaling levels and the opposite is true at high signaling levels, underlines the phenomenon of countersignaling. We show that under the D1 refinement, the equilibrium signaling action must be quasi-concave in type and generally exhibits pooling, with intermediate types choosing higher actions than higher and lower types. We provide an algorithm to systematically construct an equilibrium and use this algorithm to establish its existence for this general class of preferences with an arbitrary discrete-type distribution.

Keywords: countersignaling, weak pairwise-matching condition, minimum allocation, low types separate and high types pairwise-pool

JEL Classification: D82, I21

Suggested Citation

Chen, Chia‐Hui and Ishida, Junichiro and Suen, Wing C., Signaling under Double-Crossing Preferences: The Case of Discrete Types (March 3, 2022). ISER DP No. 1166, Available at SSRN: https://ssrn.com/abstract=4051180 or http://dx.doi.org/10.2139/ssrn.4051180

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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