Costless Signaling with Costly Signals

Abstract

We study signaling environments with two features that are common in practice: first, complete-information bliss points are heterogeneous across different types of senders; second, receivers observe many choices by each sender, rather than a single decision. We prove that, ironically, a sufficiently large increase in the weight attached to signaling costs allows senders to signal their true types at arbitrarily low overall cost. As an application, it follows that, when senders take a sufficient number of observable actions, their private information is revealed almost costlessly. Instead of becoming ubiquitous, costly signaling becomes essentially irrelevant.