Education as a Signal in the Labor Market

A new company produces high-end, durable luggage, but consumers cannot tell its quality apart from lower-quality competitors before buying. To convince customers of its superior quality, the company offers a 10-year comprehensive warranty, while competitors only offer a 1-year warranty. Which statement best explains the economic reason why this long warranty is a believable indicator of high quality?

Evaluating a Business Signal

The Credibility of Costly Signals

A job applicant knows they are a highly productive worker, but a potential employer cannot tell this just from an interview. To demonstrate their high productivity, the applicant completes a difficult and expensive master's degree, which would be much harder for a less productive worker to complete. Match the elements of this scenario to the corresponding economic terms.

A software company wants to convince potential customers that its new product is of high quality (i.e., has very few bugs). To do this, it offers a free, high-quality branded coffee mug with every purchase. Why is this action unlikely to be an effective signal of the software's quality?

Ineffective Signalling in the Used Car Market

Designing a Credible Market Signal