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Signaling, network externalities, and subsidies

Journal Contribution - Journal Article

© 2015, Springer Science+Business Media New York. A signal may be more effective the greater the number of people who use the same signal, thereby creating a network externality and potentially generating multiple equilibria. A subsidy to the signal can increase efficiency, and the signalers may benefit from the subsidy even if they pay taxes to finance it. But people who benefit from the signal may oppose too large a subsidy, because a large subsidy could destroy the signaling value.
Journal: International Tax and Public Finance
ISSN: 0927-5940
Issue: 5
Volume: 23
Pages: 798 - 811
Number of pages: 14
Publication year:2016