Spence 1973 (QJE) — job-market signaling; signals work only when costlier for low-quality types to acquire than high-quality types; cost-drop collapses pooling equilibrium

Claim: Spence (1973), "Job Market Signaling," established that in markets with asymmetric information, signals work only if they are costlier for low-quality types to acquire than for high-quality types. Education, in Spence's original setup, signals not because it teaches productive skills but because it is harder for low-ability workers to complete.

The model produces an equilibrium logic: signals are valuable in proportion to their differential cost. When the cost of producing a signal drops, the signal loses informational value and reverts to a pooling equilibrium where everyone emits it and it conveys nothing.

Source: Spence, M. (1973). "Job Market Signaling." Quarterly Journal of Economics 87(3), 355–374.

Confidence: Verified (foundational paper; Spence won the 2001 Nobel partly for this work).

For Candid: Spence's framework is the analytical chassis for [[signalling-theory-applied-ontario-credential-stack]], [[best-of-houzz-low-cost-engagement-driven-signal]], and [[audit-gap-problem-pooling-equilibrium-degradation]]. Operational distillation: costly signals retain value; cheap signals devalue toward zero. The Candid pitch should sit alongside costly signals (HCRA, Gold Seal, Tarion-enrolled clients, audited case studies) and not alongside cheap signals (pay-to-play lists, undifferentiated badges) — because the cheap signal contaminates the credible signals around it ([[audit-gap-problem-pooling-equilibrium-degradation]]).