Signaling with Private Monitoring
Abstract
We study dynamic signaling when the informed party does not observe the signals generated by her actions. A long-run player signals her type continuously over time to a myopic second player who privately monitors her behavior; in turn, the myopic player transmits his private inferences back through an imperfect public signal of his actions. Preferences are linear-quadratic and the information structure is Gaussian. We construct linear Markov equilibria using belief states up to the long-run player's . Because of the private monitoring, this state is an explicit function of the long-run player's past play. A novel separation effect then emerges through this second-order belief channel, altering the traditional signaling that arises when beliefs are public. Applications to models of leadership, reputation, and trading are examined.
Keywords
Cite
@article{arxiv.2007.15514,
title = {Signaling with Private Monitoring},
author = {Gonzalo Cisternas and Aaron Kolb},
journal= {arXiv preprint arXiv:2007.15514},
year = {2020}
}