MICRO/THEORY: Signaling Games with Effective Increasing Differences; Dr Daniel Clark (University of California, Los Angeles)

Abstract

We identify and study signaling games with effective increasing differences. In such signaling games, there is an object whose ultimate value is determined by the sender's chosen signal and receiver's chosen action, and the sender's utility function exhibits increasing differences in this object and the sender's type. Many seemingly disparate signaling games, such as Crawford-Sobel cheap-talk games or Spence job market games, have effective increasing differences, and we provide a characterization of which signaling games have effective increasing differences. We use techniques familiar from mechanism design to characterize the incentive compatible outcomes of such games. This characterization enables us to recover and generalize various well-known findings, such as the significant pooling across equilibria in Crawford-Sobel cheap-talk games. It also facilitates development of new results, such as the fact that money burning facilitates a substantial multiplicity of incentive compatible outcomes, as well as tractable study of novel applications, which we illustrate with an application that features cheap-talk communication, money burning, and costly evidence generation.