With a dissipative signal,
A)there is no social deadweight loss in the aggregate
B)the receiver compensates the sender for the cost of the signal
C)the incentive compatibility condition will always be restored
D)the sender absorbs some of the cost of signaling
E)all of the above

Question

Quizplus · Accepted Answer

In a dissipative signal, the sender absorbs some of the cost of signaling, which means that the sender partially pays for the cost of transmitting the signal. This is in contrast to a fully informative signal, where the receiver compensates the sender for the cost of the signal. There may still be social deadweight loss in the aggregate, and the incentive compatibility condition may not always be restored.

With a Dissipative Signal