Michael Spence

Michael Spence is a Canadian-American economist whose theory of market signaling explains how informed parties use costly signals to communicate with less-informed parties. He shared the 2001 Nobel Memorial Prize in Economic Sciences.

Signaling (economics): Signaling is the use of observable actions or attributes to communicate private information in markets. Spence formalized how informed people can credibly reveal their hidden qualities.
Job-market signaling: Job-market signaling is the use of credentials and other observable traits to convey worker quality to employers. Spence’s original model shows how education can signal productivity during hiring.
Market for Lemons: The market for lemons is George Akerlof’s model showing how quality uncertainty can drive good products from a market. Akerlof’s analysis helped establish the information problem that Spence addressed through signaling.
Stanford University: Stanford University is a private research university in California. Spence taught economics at Stanford and served as dean of its business school.
Asymmetric information: Asymmetric information occurs when parties to an exchange possess different information about relevant facts. The signaling model addresses markets where one side knows more than the other.
Screening (economics): Screening is an uninformed party’s use of choices or tests to learn about others’ hidden characteristics. It contrasts with signaling, where the informed party initiates communication.
George Akerlof: George Akerlof is an American economist known for analyzing markets with asymmetric information. Akerlof’s work on quality uncertainty formed part of the research recognized alongside Spence’s.
Harvard University: Harvard University is a private research university in Cambridge, Massachusetts. Spence earned his doctorate in economics at Harvard.
Labor economics: Labor economics studies workers, employers, wages, employment, and the institutions shaping labor markets. Spence’s education model explains how credentials affect hiring and wages.
Signaling theory (sociology): Signaling theory in sociology examines how actions and symbols convey information about people and social identities. Spence’s economic framework also informs analysis of credentials and status signals.

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Edmund PhelpsRelated: Spence collaborated with Phelps on early research concerning labor markets and information.