he assumption of a purely self-interested supervisor in a three-tier hierarchy (a principal-supervisor-agent framework) gives rise to the possibility of supervisor-agent collusion which lowers the principal's profits. It has also been shown that the transfer of information in side contract negotiations between the supervisor and the agent may hinder collusion and maintain high principal profits. In chapter 2, I show that imposing "credible" updating of type beliefs during negotiations can guarantee one of two outcomes that are Pareto superior for the supervisor-agent coalition. I further refine the equilibria by endogenizing the decision of who makes the side contract proposal, and a unique collusive equilibrium results. In allowing the principal to form a collusion-proof incentive contract, I find that the only plausible solution is for the principal to ignore the supervisor. It is clear that there is no value at all to the principal in hiring a self-interested supervisor. This casts doubt on the validity of the assumption that the supervisor is self-interested, and I discuss some possible alternatives. Chapter 3 studies job matching inefficiencies under two-sided uncertainty. I examine these inefficiencies in a setting of a single-stage, simultaneous-offer bargaining situation, where the applicant does not know his productivity with the firm, and the employer does not know the applicant's reservation wage. I compare linear bid strategy equilibria between the cases where the applicant is uninformed of his productivity and where he is informed. I find that the payoff to the applicant is higher if he is informed. He is thus willing to collude with an informed person within the firm, paying him up to the difference in payoffs to obtain his productivity information. It is noteworthy that the collusive equilibrium is always more efficient than the non-collusive equilibrium, and that most types of employer prefer the applicant to have the knowledge. In the cases that the employer does not wish the applicant to possess the information, I examine possible reward schemes for the employer to use to deter collusion. I find, however, that a successful reward scheme is too costly to the employer, and coalition formation always occurs in equilibrium. Chapter 4 studies the strategic choice of job tenures to maximize lifetime earnings. A worker's salary typically increases with tenure, and the possible net starting salary at a new job depends on such factors as search costs, training period duration, rate of human capital accumulation, and experience. The worker thus wishes to choose appropriate tenures considering the levels of these factors for the industry in which he works. I set up a general framework for the problem, and solve using specific functional forms for salary increments and the new starting salary. I find that these factors are important in determining the optimal number of jobs to work, and the optimal distribution of tenures among the jobs. It is easy to see how variations in these factors across industries can help explain variations in turnover rates and tenure choices of individuals at different points in their working lifetimes. Also, we see how realistic variations in these values over the course of a worker's lifetime yield results consistent with empirical findings. / Ph. D.

Mehra and Prescott's (1985) equity premium puzzle has stirred continued debate on just why the average return on equity has been so high relative to the risk-free rate. Recent work by Backus, Gregory, and Zin (1989), Knez and Snow (1992), and Trainor (1992) have also documented a liquidity premium puzzle. In addition, Fama and French (1992) have found that beta has no explanatory power in explaining an asset's excess return. These studies point out that current financial models are unable to explain even the most basic premise that assets with greater risk have higher returns. The question that now arises is why are these financial models failing to explain excess returns? One obvious answer to this question which has been completely ignored is that the proxy being used to define risk is wrong. It is the contention of this proposal that investors are concerned about buying into an asset and subsequently experiencing a sequence of below average or negative returns. Under this premise, using the variance of returns as a measure of risk is inadequate and a new risk measure must be derived. This study demonstrates that measuring the deviation of an investor's wealth level from buying a risky asset in relation to what an investor's wealth level would have been from buying a risk-free asset discerns both the deviation of returns and the propensity of returns to sequence. It is then shown that sequencing risk and the slope of the term structure are integrally related. Specifically, the steeper the yield curve, the greater sequencing risk will be priced since a negative sequence could result in forced borrowing by investors when rates are high to maintain a constant consumption rate. Empirically, it is shown that measuring an asset's risk by the contribution it makes to a portfolio's propensity to sequence rather than to a portfolio's variance more accurately explains portfolio returns within a CAPM type framework. Additionally, size does not usurp the explanatory power of this new beta. Surprisingly, it is found that the explanatory power of the traditional beta and size are contingent upon the slope of the term structure being fairly flat. The wealth beta seems to be unaffected. The conclusion of the study suggests that current financial models are seriously flawed due to the erroneous definition and mis-measurement of risk. / Ph. D.

Evidence of changing patterns of food consumption behavior is presented. Previous attempts at explaining these changes are critically reviewed and the need for an alternate approach is identified. A model of consumer behavior in which utility from food consumption is maximized subject to outlay for foods and limits on the consumption of fat, cholesterol, sodium, and/or other food components is proposed. This model yields a system of demands that are functions of prices and outlay as well as the composition of food and limits on the consumption of these components. The structure of this model is examined and restrictions on consumer food demands are derived. The derivation of individual demands based on the proposed model is demonstrated using a specific indirect utility function. Tests of the joint hypotheses that fat or cholesterol consumption determines food demand are defined. The computation of aggregate food demand elasticities with respect to changes in prices and changes in attributes such as fat or cholesterol consumption is demonstrated. Data necessary for estimating the parameters of the model and testing hypotheses are identified. The model proposed in this study allows tests of the hypothesis that food demands are not affected by food composition as well as measurement of these effects / Ph. D.

This dissertation is a collection of essays on bids and offer matching in a labor market for new entrants to white-collar jobs. The papers compare some of the different institutions for determining wages and conducting the hiring process in the market for new entrants to white collar jobs. The first essay analyzes how does a firm announce and commit to a wage prior to deriving specific information about applicants' productivity and the consequences of following this hiring process. In the model there are two firms and at least as many applicants as the number of firms. All applicants apply simultaneously to both firms in response to the job advertisement which also mentions a wage. Each firm derives the firm-specific productivity of the applicants from their applications which is private information to each firm. None of the applicants have any information about the firms' evaluation. There are four pure strategy Nash Equilibria in wage announcements. Both firms announce a high wage, both firms announce a low wage, both firms announce a high or a low wage, and one firm announces a high wage and the other firm announces a low wage. In the latter case there also exists a unique mixed strategy equilibrium reflecting a firm's uncertainty about the choice of the other firm. In equilibrium one or both firms may not hire and the equilibrium may not exhibit wage dispersion. The second essay analyzes the question; which is better, to announce and commit to a particular wage prior to deriving specific information about applicants' productivity or to offer wages privately after deriving the firm-specific productivity. The equilibrium policy, to be followed by the firms in the first place, is determined endogenously by comparing the ex ante expected profits associated with the equilibria under the different policies. Lack of prior information and the uncertainty about the possible match results in "offer wages privately" as always an equilibrium policy. However, if a low wage is the equilibrium strategy under all the policies, then "any pair of policies" is an equilibrium. This justifies one of the circumstances in which different policies might coexist. In equilibrium a firm's position is always filled and the equilibrium outcome may not exhibit wage dispersion. The third essay analyses the question, if "announcing a wage" is the strategy rule to be followed by the firms, then what should be the equilibrium timing of wage announcement, before or after receiving specific information about applicants' productivity. Two policies are compared. Under the first policy a firm announces and commits to a particular wage prior to deriving the match-specific productivity. Under the second policy a firm solicits applications, derives the firm-specific productivity, and then announces and commits to a wage. The equilibrium timing of wage, to be followed by the firms in the first place, is determined endogenously by comparing the ex ante expected profits associated with the equilibrium strategy under the different timings. It turns out that announcing and committing to a particular wage after deriving specific information is always an equilibrium timing because of the informational advantage. However, if a low wage is the equilibrium strategy under all the policies then any pair of policies is an equilibrium. In equilibrium one of the firm's position may remain unfilled. The equilibrium outcome may not exhibit wage dispersion. / Ph. D.

In this study we look at the effects on economic growth of the continuous introduction of intermediate goods. Our theoretical framework enhances the endogenous growth theory, by allowing for participation in international trade. Furthermore, we test the behavior of the proposed theoretical model with data provided from the Penn World Tables. The theoretical part describes an economy in two different stages: first, we develop a model for a closed economy, and study the effects of the continuous introduction of durable goods. We show that the continuous introduction of durables causes sustained economic growth. We demonstrate that a more educated labor force contributes more to the growth of the economy. Second, we assume that trade takes place among similar countries. Both final and intermediate goods are traded, and we show that participation in international trade enhances the economic growth of this economy. We prove that with no restrictions to trade, countries continue to grow. Because we assumed that the countries were identical, we found that those countries that pursue the introduction of new durables will grow faster. In the empirical part, we test the proposed theoretical model. We want to test how the economic growth of this economy, is affected by the measures of exports and imports. We define the econometric method, and demonstrate empirically that there is a positive relation between the growth rate of an economy and the measures of exports and imports. Furthermore, the accumulation of physical capital has a positive effects on economic growth. We show that a positive relation exists between the available level of human capital and the growth rate of the economy. In our theoretical model, human capital is introduced indirectly through the efficiency of the labor force. We show that an educated labor force is preferred by the producers of final goods. We conclude that, other things being equal, poor countries that start with a relatively high level of human capital will grow faster. We also test our statistical model against the assumptions of normality, linearity, homoskedasticity, and homogeneity. We demonstrate that our statistical specification does not violate any of these assumptions. Thus, we can call our model a well-specified Statistical model. / Ph. D.

Theoretically, an equiproportionate change in prices and income should not affect the sales of products. This is known as the homogeneity of demand property on which the economic consumer demand theory is built. Rejection of this assumption is indicative of a state of mind called ‘money illusion’. Evidence from applied economics literature suggests that consumers respond asymmetrically to equal changes in prices and income. Such an asymmetry could be, among other things, due to the exclusion of marketing mix variables in their demand functions or inappropriate grouping of products. The main focus of the dissertation is to provide a theoretically consistent approach to include marketing variables in a sales response function. Specifically, advertising is hypothesized to act as a moderator in eliminating the asymmetry. A related issue investigated in this research is the existence and empirical testing of mental expenditure accounts. Grouping of products into mental expenditure accounts is thought to improve the homogeneity of demand. A system of equations is developed since the model involves prices and advertising of all products. The systems approach offers a consistent means to analyze sales when advertising programs interact; for example, orange juice advertising may affect the demand for milk and vice versa. The expenditure share system of equations is estimated using the Seemingly Unrelated Regression (SUR) estimation procedure to allow for dependence among error terms and cross-equation coefficients. Theoretically, this research tests the validity of the well established consumer demand theory. It provides an approach, consistent with neoclassical economic theory, to include marketing mix variables in sales response modeling. Managerially, this study helps in determining the level of advertising necessary to reduce the asymmetry in consumer response due to price and income changes. Substitution patterns obtained from the proposed analysis will aid managers to decide upon prices of closely related products within a category in the wake of income changes. The proposed model provides a methodology to explore and test market structure. / Ph. D.

[Truncated abstract] This thesis examines competing asset-pricing models in Australia with the goal of establishing the model which best explains cross-sectional stock returns. The research employs Australian equity data over the period 1980-2001, with the major analyses covering the more recent period 1990-2001. The study first documents that existing asset-pricing models namely the capital asset pricing model (CAPM) and domestic Fama-French three-factor model fail to meet the widely applied Merton?s zero-intercept criterion for a well-specified pricing model. This study instead documents that the US three-factor model provides the best description of Australian stock returns. The three US Fama-French factors are statistically significant for the majority of portfolios consisting of large stocks. However, no significant coefficients are found for portfolios in the smallest size quintile. This result initially suggests that the largest firms in the Australian market are globally integrated with the US market while the smallest firms are not. Therefore, the evidence at this point implies domestic segmentation in the Australian market. This is an unsatisfying outcome, considering that the goal of this research is to establish the pricing model that best describes portfolio returns. Given pervasive evidence that liquidity is strongly related to stock returns, the second part of the major analyses derives and incorporates this potentially priced factor to the specified pricing models ... This study also introduces a methodology for individual security analysis, which implements the portfolio analysis, in this part of analyses. The technique makes use of visual impressions conveyed by the histogram plots of coefficients' p-values. A statistically significant coefficient will have its p-values concentrated at below a 5% level of significance; a histogram of p-values will not have a uniform distribution ... The final stage of this study employs daily return data as an examination of what is indeed the best pricing model as well as to provide a robustness check on monthly return results. The daily result indicates that all three US Fama-French factors, namely the US market, size and book-to-market factors as well as LIQT are statistically significant, while the Australian three-factor model only exhibits one significant market factor. This study has discovered that it is in fact the US three-factor model with LIQT and not the domestic model, which qualifies for the criterion of a well-specified asset-pricing model and that it best describes Australian stock returns.

This thesis examines empirical and theoretical issues related to the role of uninsurable individual risk and heterogeneity in macroeconomics. The thesis includes four chapters. The first chapter uses data from the Panel Study of Income Dynamics (PSID) to test full risk-sharing among North American households. The second chapter is a short essay where I use simulated data to show how the method applied in the previous chapter can be used to distinguish between partial risk sharing and imperfect credit markets. The third chapter develops a heterogeneous agent dynamic general equilibrium model which jointly models aggregate saving and employment. Finally, the fourth chapter investigates empirically the ability of financial market incompleteness to help explaining the equity premium puzzle. The central motivation throughout this dissertation is the recognition that the interaction between cross-sectional volatility and aggregate volatility is of fundamental importance to understand the way we should model macroeconomic aggregates such as aggregate consumption, asset prices and business cycle fluctuations.<p><p> / Doctorat en Sciences économiques et de gestion / info:eu-repo/semantics/nonPublished

This dissertation contains three chapters. The first chapter, Strategic Alliance and Endogenous Production Network, examines how U.S. firms’ involvement in strategic alliances interacts with their endogenous choice of production networks. The results reveal that the alliance firm is more likely to actively create and break supply chains, especially with customers or suppliers from the industries within the alliance-related industrial scope. Moreover, such interactions are stronger when the updated customers and suppliers have closer proximity to the alliance-related industries. To rationalize these stylized findings, we develop a model featured with the firm’s endogenous searching of supplier candidates and endogenous input sourcing strategy. Furthermore, strategic alliance is introduced as a mitigation of friction in candidate searching. The model implies that the strategic alliance could encourage the firm’s search for supplier candidates and boost the adding and dropping of production networks simultaneously. The second chapter, R&D, Risk Premia, and Credit Spreads, is motivated by the empirical evidence that among the U.S. firms with both publicly traded equity and bonds, the R&D-intensive ones tend to show higher expected equity returns, but lower leverage, default rates and credit spreads than R&D-non-intensive ones. To provide a unified explanation for these cross-sectional differences, we propose a production-based dynamic stochastic general equilibrium model featured with long-run risk and disaster risk. Specifically, we assume that the economy consists of an R&D and non-R&D sector. When involved in innovation, the R&D sector is assumed to face a rare disaster shock in the accumulation of the intangible R&D capital. The model implies that the high monopolistic rent increases the market value of R&D sector and generates a lower default rate and credit spread compared to the non-R&D sector. Besides, despite the low leverage capacity restricted by the non-collateralizable intangible capital, the business risk underlying the innovative activities plays a dominant role and results in an overall higher equity return of the R&D sector. Moreover, the model generates sizable heterogeneity in the quantities of interest between the R&D and non-R&D sector as observed from the data, and fits the aggregate macroeconomic and asset pricing moments reasonably well. The third chapter, Measuring Common and Industry-Specific Uncertainty: A Bayesian Approach, estimates the measures of the common and industry-specific uncertainty from U.S. quarterly industry-level financial characteristics by a Bayesian dynamic factor model. In this model, we assume that the industrial financial characteristics are driven by common and industry-specific factors that evolve by VAR processes, where the time-varying standard deviation of the corresponding innovation terms are considered as proxies of common and industrial uncertainty. Then, we compare the estimated common uncertainty measure with three existing aggregate uncertainty measures. The results suggest that our measure interacts with real economy and tracks the business cycles like the other three measures. Moreover, we test if these uncertainty measures could forecast the stock returns of industrial portfolios together with other moments estimated from the model. The results suggest that a time-varying linear forecasting model of the uncertainty measures performs well in return forecasting both in short and long run for most of the industries.

published_or_final_version / Statistics and Actuarial Science / Doctoral / Doctor of Philosophy