We use a signaling game to evaluate the incentives that affect an inventor's decision whether to work in a firm's lab or establish a start-up. The model predicts that in a "free market", in a high payoff project and in the firm's lab, the inventor's compensation will be a proportion of the...

We reexamine the role of prices and advertising expenditures as signals of quality. Consumers are either "fastidious" or "indifferent". Fastidious individuals value high quality more and low quality less than do indifferent individuals. Then a sensible and robust separating equilibrium exists in...