This paper analyzes how asymmetric information in two dimensions affects the signaling game. Competency is the efficiency in running the government.
Character is the degree of opportunism.
Political budget cycles can lead to a separating equilibrium only if the degree of opportunism is low. Since the driving force of many political careers is to be reelected at almost all costs, a separating equilibrium does not exist. What can be expected instead is a semi-separating equilibrium. Institutional restrictions that limit cycles may improve welfare.