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Home > Separating equilibrium in quasi-linear signaling games

Separating equilibrium in quasi-linear signaling games

Working paper
Author/s: 
Rudolf Müller, Dries Vermeulen
Issue number: 
26.2014
Series: 
Maastricht University, Graduate School of Business and Economics (GSBE) Research Memorandum
Year: 
2014
PDF [1]
Using a network approach we provide a characterization of a separating equilibrium for standard signaling games where the senders payoff function is quasi-linear. Given a strategy of the sender, we construct a network where the node set and the length between two nodes are the set of the senders type and the difference of signaling costs, respectively. Construction of a separating equilibrium is then equivalent to constructing the length between two nodes in the network under the condition that the response of the receiver is a node potential.We show that, when the set of the senders type is finite, the collection of separating signaling functions forms a lower bounded lattice. We describe an algorithm to compute separating equilibrium strategies. When the set of the senders type is a real interval, shortest path lengths are antisymmetric and a node potential is unique up to a constant. A strategy of the sender in a separating equilibrium is characterized by some differential equation with a unique solution.Our results can be readily applied to a broad range of economic situations, such as the standard job market signaling model of Spence a model not captured by earlier papers and principal-agent models with production.
Tags: 
Game Theory & Graphs [2]

Source URL:http://coalitiontheory.org/content/separating-equilibrium-quasi-linear-signaling-games

Links
[1] http://pub.maastrichtuniversity.nl/807b4014-fecc-4e2f-b211-d58a65ac34ad [2] http://coalitiontheory.org/research-areas/game-theory-graphs