Dynamic Noisy Signaling
- American Economic Journal: Microeconomics (Forthcoming)
This article studies costly signalling. The signalling effort is chosen in multiple periods and observed with noise. The signaller
benefits from the belief of the market, not directly from the effort
or the signal.
Optimal signalling behavior in time-varying environments trades
off effort-smoothing and influencing belief exactly when it yields
a return. If the return to signalling 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.
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