An Optimal Signaling Equilibrium

An Optimal Signaling Equilibrium

This paper analyses the optimal combination of costly and costless messages that a Sender uses in a signaling game if he is able to choose among all equilibrium communication strategies. We provide a complete characterization of the equilibrium that maximizes the Sender’s ex ante expected utility in case of uniformly distributed types and quadratic loss functions. First, the Sender often wants ...

Optimal and Equilibrium Groups

We discuss economies with complementarities and/or crowding in production or consumption. We define a price system with the property that core states of the economy are the same as equilibrium states, provided the core has equal treatment. Prices for agents (wages in the production examples, or club admission fees in the club examples) internalize intra-group “externalities” generated by agents...

Equilibrium Selection in Signaling

An Efficient Optimal-Equilibrium Algorithm for Two-player Game Trees

Two-player complete-information game trees are perhaps the simplest possible setting for studying general-sum games and the computational problem of finding equilibria. These games admit a simple bottom-up algorithm for finding subgame perfect Nash equilibria efficiently. However, such an algorithm can fail to identify optimal equilibria, such as those that maximize social welfare. The reason i...

Optimal Subsidies in an Equilibrium Model with Externalities∗

We study the problem of optimally targeting subsidies when the decisions of individual recipients impose externalities on others. In particular, we develop a structural equilibrium model of post-disaster rebuilding when neighborhoods’ amenity values are directly affected by the rate of rebuilding. We estimate and identify the structural parameters of the model via indirect inference, exploiting...