Monotone equilibria in signaling games

Shuo Liu, Harry Pei*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

We examine the monotonicity of the sender's equilibrium strategy with respect to her type in signaling games. We show that when the sender's return from the receiver's action depends on her type, the Spence–Mirrlees condition cannot rule out equilibria in which a higher-type sender chooses a strictly lower action than a lower-type. We provide sufficient conditions under which all equilibria are monotone, which require that the sender's payoff is decreasing in her action, is increasing in the receiver's action, and has strictly increasing differences between her type and the action profile. We apply our sufficient conditions to education signaling, advertising, and warranty provision.

Original languageEnglish (US)
Article number103408
JournalEuropean Economic Review
Volume124
DOIs
StatePublished - May 2020

Keywords

  • Increasing absolute differences over distributions
  • Monotone equilibrium
  • Monotone-supermodularity
  • Signaling game
  • Spence–Mirrlees condition

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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