Equilibrium selection in the Spence signaling game. (English) Zbl 0741.90012

van Damme, Eric; Güth, Werner

Game equilibrium models II. Methods, morals, and markets, 263-288 (1991).

Summary: [For the entire collection see Zbl 0729.00018.]
The paper studies the most simple version of the Spence job market signaling model in which there are just two types of workers while eduction is not productivity increasing. To eliminate the multiplicity of equilibria, the general equilibrium selection theory of J. Harsanyi and R. Selten is applied. It is shown that without invoking Pareto comparisons, the Harsanyi/Selten theory selects Wilson’s \(E_ 2\)- equilibrium as the solution. The main elements in the analysis are the study of primitive equilibria and of the tracing procedure. The analysis sheds light on the “evolutive” and the “eductive” aspects of Harsanyi and Selten’s theory and it also allows a better understanding of the older, non game theoretic literature on signaling.

MSC:

91B44	Economics of information
91B50	General equilibrium theory
91A80	Applications of game theory
91B40	Labor market, contracts (MSC2010)

Keywords:

job market signaling; general equilibrium selection theory; Wilson’s \(E_ 2\)-equilibrium; primitive equilibria; tracing procedure