How can highly resolved actors convince others about how much they care about an issue?
- Credible revelation of preferences is difficult because weaker actors have incentive to pretend like they are strong. The associated information problem can lead to inefficient behaviors.
- A costly signal can credibly reveal information. Because such signals are expensive and because less resolved types care less about an issue, only resolved types are willing to pay them. This allows for credible information transmission.
- Because sanctions result in efficiency losses, they can act as costly signals.