[Alert: Economic Theory Ahead]
The extent to which John Kerry harps on his qualification as a decorated Vietnam veteran has gotten me thinking about a (probably unjustified) application of the "signalling problem" from economics to the Democratic race. The signalling problem finds its clearest exposition in
Spence, M. "Job Market Signalling," (1973) Quarterly Journal of Economics.
The basic idea is that the decision to offer someone a certain wage is contingent on the employer's belief that the candidate's productivity is equal to or greater than the wage offer. In a world of imperfect and asymmetric information (ie reality), the employer does not have access to detailed data regarding the candidate's lifestyle, work habits, working history, or any other information that would indicate the candidate's productivity. More specifically for the theory behind the signalling problem, acquiring such information costs the employer more than the economic benefit he would gain if he had it.
So the idea of signalling arises as a 'short-cut' to the cost-barrier to information acquisition. Basically, if there is some cheaper way that the candidate can tell the employer what his productivity is, it will rectify the market failure that results from the asymmetry of information.
The problem with signalling, obviously, is that the signal has to be reliable. The candidate necessarily has an incentive to tell the employer that he's brilliant and hardworking, that he'll revolutionize the company's product line and earn millions for his boss, etc. Words are cheap. Reliable signals are expensive. In fact, the definition of a reliable signal is that it costs more for an unqualified candidate to signal than for a qualified candidate to signal.
To clear up the issue, Spence's model chooses education as its signal. In Spence's world, there are two kinds of people: productive and unproductive. The productive people are twice as productive as the unproductive people, but everyone earns the same wage (the wage is exogenous). So the employer wants to make sure that all of his employees are productive. In this world, candidates can acquire a bachelor's degree, which brings with it an opportunity cost, the time spent getting the degree. Unproductive people are equally unproductive at everything they do, so it costs them more to earn the degree than it costs productive people. The employer, knowing the value of the degree, chooses whom to hire based on who has it.
The previous sentence is contingent on the fact that the degree costs the unproductive people just enough more than the productive people that the cost-benefit analysis, comparing the cost of the degree to the benefit of the productive-person wage, comes up negative for unproductive people. Therefore, they will not pursue the degree. The productive people, on the other hand, 'pay' less for the degree, so the cost-benefit analysis comes up positive, and they acquire the degree and the job. The key to the signalling problem is that the signal has to cost less when it is used truthfully. Otherwise, everyone would use the signal and the signal would be worthless.
Enter John Kerry. Assume that there are two kinds of politicians: wimps and leaders. Everyone wants to vote for a leader, but everyone knows that there are wimps in the system. No politician wants to be known as a wimp, so they all say that they are leaders. But everyone knows that some, the wimps, are lying. So the voters use signals to try to ascertain which candidates are wimps and which are leaders. The value of a signal that the voters use, in the classic signalling problem, depends on the fact that the signal has to cost more for the wimps than it does for the leaders, so much more that the benefit of winning office does not outweigh the cost.
John Kerry is using his veteran status as that signal. In order to accept that, by virtue of his veteranness, John Kerry is a leader, we have to know that all veterans are leaders. It 'costs' too much, in terms of fear and perhaps a probability-weighted estimate of the disutility of dying or getting injured, for wimps to go off to war. The problem is, we don't know that. In fact, we know that veteran status is a useless signal precisely because John Kerry screwed up. If he really were a leader (in my model), he would have
- voted for the first Gulf War.
- actually done something important during his Senatorial career.
- stood up to George W. Bush, especially on the recent war.
But Kerry didn't do any of those things. Not doing even one of them is the critical mistake that shows him to be a wimp, because leaders (in my world) are defined as people who make tough choices such as those above. The fact is, John Kerry is a wimp.
We now know that veterans do not necessarily make leaders. That is, the cost of 'becoming' a veteran is not so high as to exclude wimps. John Kerry is a wimp, and he is a veteran. So, from the example of John Kerry, we know for evermore that being a veteran is a useless signal and does not effectively differentiate between leaders and wimps. At least, in my world.