Costly and hard-to-fake actions convey private information; the cost is what makes the signal credible.
Spence's 1973 model. A degree can be worth paying for even if it teaches nothing, provided it is cheaper to obtain for the able than the unable, which is the uncomfortable half of the theory.
In practice
- A graduate scheme that requires a 2:1 in any subject whatever is not asking about the subject.
- An employer that requires a qualification unrelated to the work is not being irrational; it is buying a filter, and the candidate is paying for it.
- Standing
- In education, the sheepskin effect is the evidence most often offered for it.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money