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Dynamic Noisy Signaling†

Dynamic Noisy Signaling† AbstractThis article studies costly signaling. The signaling effort is chosen in multiple periods and observed with noise. The signaler benefits from the belief of the market, not directly from the effort or the signal. Optimal signaling behavior in time-varying environments trades off effort-smoothing and influencing belief exactly when it yields a return. If the return to signaling first increases over time and then decreases, then the optimal effort rises slowly, reaches its maximum before the return does, and declines quickly. Advertising data displays this pattern. (JEL C73, D12, D82, D83, M31, M37) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20160336
Publisher site
See Article on Publisher Site

Abstract

AbstractThis article studies costly signaling. The signaling effort is chosen in multiple periods and observed with noise. The signaler benefits from the belief of the market, not directly from the effort or the signal. Optimal signaling behavior in time-varying environments trades off effort-smoothing and influencing belief exactly when it yields a return. If the return to signaling first increases over time and then decreases, then the optimal effort rises slowly, reaches its maximum before the return does, and declines quickly. Advertising data displays this pattern. (JEL C73, D12, D82, D83, M31, M37)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: May 1, 2018

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