fraction

The passage around this formula

Spence’s contribution was to explain how information can cross the asymmetry without direct verification. An agent takes a costly action — in his original case, education — and the action separates types only under a specific condition: the marginal cost of the signal must be lower for the type the signal is supposed to identify. In the standard notation, with signal level s and type $\theta$ increasing in ability, the single-crossing condition is $\frac{\partial^{2} c(s,\theta)}{\partial s \, \partial \theta} \;<\; 0$. and it is this inequality, not the content of the signal, that does the work [ 3 ] . Spence’s model famously does not require the signalling activity to be productive at all. It requires only that it be differentially costly.

Read this part in the article →