Signaling with Pre-Investment and Market Design

Signaling, in regard to its role of information transmission, has been well understood by existing literature, but its e¢´ect on the decision to invest in content has not been thoroughly studied. This paper analyzes a model of pre-investment and subsequent costly signaling to reconsider the social value of signaling. We ?nd that signaling can become socially bene?cial with pre-investment, and study the socially optimal signaling of separating and pooling. We also identify conditions under which the government?s market design selects the pooling as its optimal signaling form.