This thesis is composed of three chapters. While chapter 1 stands on it’s own, chapters 2 and 3 are related in topic and grew out of two parts of a single paper. Hence, even though they constitute largely independent treatments of separate questions they have a unique introduction and conclusion. Chapter 1 considers a dynamic tournament setting where feedback gives agents the possibility to learn about the productivity of a technology they are using. If the technology proves unsatisfactory, they have the possibility of switching to a different one. However, it is shown that full feedback does not lead to the efficient technology choice in a tournament setting. Risk neutral agents will behave as risk averse in some cases and risk loving in others. It is shown that the inefficiency can be ameliorated by giving the later period more weight for the allocation of the tournament prize. In a setting with effort. feedback will induce the agents to exert higher effort in the presence of learning. Finally, the efficient technology choice can be achieved using partial feedback. Chapters 2 and 3 investigate the phenomenon of kindness towards strangers. Seemingly altruistic behaviour can follow from purely selfish motives if agents face risk. In a repeated dictator game setting, a charitable equilibrium can be sustained if dictators have a positive probability to change roles, even with anonymous transactions. This also holds if behaviour cannot be monitored perfectly. The main driving factor for charitable behaviour is the desire to sustain the social norm of kindness, from which the charitable agent herself might benefit in the future. This can be interpreted as an informal insurance arrangement in the absence of enforceable contracts. Furthermore, we examine how cooperation is complicated by inequality, in terms of heterogeneous risk exposure. We study how more persistent differences in risk make cooperation increasingly hard to achieve. Moreover, heterogeneity can lead to a fragmentation of society, where cooperation is only possible within subgroups, leading to losses in welfare. The model allows for interesting interpretations of social divisions in societies of varying heterogeneity.

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A large proportion of international trade is in intermediate goods. The implications of this empirical regularity, however, have not been exhaustively explored in several aspects. The main objective of the thesis is to fill in the gap by introducing trade in intermediate goods into several strands of literature in international economics. This thesis is a collection of three essays studying the implications of trade in intermediate goods for the degree of exchange rate pass-through (Chapter 2), firms invoicing currency choice (Chapter 3) and the performance of the gravity models (Chapter 4). In Chapter 2 I present a theoretical framework and show that back-and-forth trade between two countries is associated with low degrees of aggregated exchange rate pass-through. In Chapter 3 I focus instead on firm heterogeneity in the dependence on imported inputs. I show theoretically that exporters more dependent on foreign currency-denominated inputs are more likely to price in the foreign currency. I then test the theoretical prediction using an innovative and unique dataset that covers all UK trade transactions with non-EU partners from HM Revenue and Customs (HMRC). Overall the results strongly support the theoretical prediction. Chapter 4 is a theoretical piece of work showing how the underlying trade structure alters the predictions of the gravity models. I relate gravity equations to labour shares of income. Given that these parameters are industry-specific, the results suggest that it is crucial to take them into account when the main research interest lies in sectoral differences in bilateral trade.

Regret is a negative emotion experienced upon the realisation that, had an alternative course of action been chosen, your current situation could have been improved. Psychologists and behavioural economists have long been interested in the extent to which both the anticipation and experience of this emotion can affect choice behaviour, when faced with the prospect of decision making under uncertainty and risk, where the resolution of uncertainty can have a significant effect on the degree to which an individual may regret the choice they ultimately decide to make. The literature in this area to date has principally focussed on the role of regret as an “anticipatory” emotion, whereby simply the fear of potentially regretting a course of action is sufficient to induce an individual to think twice about the decision they wish to make. More recently, however, the question has shifted to study the effects of the past “experience” of regret on subsequent decision making behaviour. This thesis both complements and challenges the existing literature in three ways. Firstly, a Monte Carlo simulation is used to introduce more realistic psychological assumptions, about the role of regret as an emotion, into a standard regret-based decision under uncertainty economic framework, and observes the patterns of behaviour which emerge when the mathematical formulation of regret is subject to the same biases and characteristics that we typically find with other emotions. Primarily, this concerns the degree to which an individual can learn about their future aversion towards regret from previous regretful experiences. Secondly, the small number of existing experiments, which aim to study the role of experienced regret on future choice, are challenged on the basis that their conclusions depend heavily on assumptions about the unobservable role regret plays in the mind of an individual. Indeed, the experimental results can be sensibly explained in a number of different ways such that opposite conclusions can be drawn. This problem is akin to the Identification Problem found in standard economics literature. Lastly, an experiment is designed and run which demonstrates that the extent to which the experience of regret affects future choice may be context dependent and population specific. The results show that we currently do not have a sufficiently strong theoretical understanding of how the anticipation of regret is connected to past choice in the mind of an individual.

This thesis examines the role of personal agency in the cultural worker’s experience of entrepreneurship. The thesis is a response to a call for further empirical studies capturing the lived experience of cultural work and of entrepreneurship (See Banks, 2006; Gill and Pratt, 2008; Hesmondhalgh and Baker, 2011; and Steyaert and Hjorth, 2006). I am inspired by an emerging literature which seeks to re-invent entrepreneurship by placing it within a social context, including being ‘enterprising’ for counter-cultural activities or for ‘good’ work (morally, ethically and practically), and female entrepreneurship. I draw on the academic disciplines of cultural studies, cultural policy studies and entrepreneurship studies as a context for this empirical research. By exploring the lived experience of cultural entrepreneurship I focus on the worker’s position and personal agency within a milieu. Day-to-day activities reveal a pragmatic approach to managing the challenges of cultural work, and the possibility for ‘rethinking cultural entrepreneurship’ (Oakley, 2014). The cultural entrepreneur’s capacity for reflexivity emerges as a means of subverting or negotiating entrepreneurial modes of work. Identity and myths are challenged by discussing ideas of performing the entrepreneur, or counteracting popular stereotypes. My research approach encourages individuals to construct their story within this dynamic context, a space they shape as well as being shaped by it.

Most of the literature on skill-biased technological change views both skilled and unskilled labour as variable inputs. In contrast, this study focuses on the role of skilled workers comprising overhead labour in the recent increase in skill demand. The fi�rst chapter focuses on the aggregate shift in skill demand, while succeeding chapters focus on the heterogeneity of this demand across �rms. In the fi�rst chapter, I argue that the transition from Ford-style mass production toward mass customization in the 1980s may be responsible for the increase in skill demand since introducing new goods requires fi�xed labour input, which is biased towards skilled workers. I present a dynamic general equilibrium model, which explains both the rapid growth in skill demand since the 1980s and the recent puzzling slowdown since the late 1990s. However, as the ratio of fi�xed to variable inputs cannot increase inde�nfinitely, my model also predicts that the growth in skill demand will slow down in the long run. In the second chapter, using UK manufacturing data, I show that the employment share of non-production workers is positively correlated with �rm size but negatively correlated with the latter over time. I argue that this serves as evidence for the existence of (partially) �xed skilled labour, with the premise being that �rms with larger �xed input are both larger in size and have a higher share of non-production workers. However, short-run output expansion only increases variable labour, and therefore it decreases the employment share of non-production workers. In the third chapter, I present a second piece of evidence in support of the main thesis of this dissertation. I show that exiting �rms as well as entering �rms have a higher share of non-production workers in UK manufacturing industries. This phenomenon is rather puzzling as exiting �firms have lower labour productivity, but nevertheless the �finding presents itself as being consistent with the contention of this study that skilled workers constitute an overhead labour input.

0.1 Competitive Markets with Adverse Selection: Part 1 of the thesis is a theoretical investigation of (strategic) competitive markets with adverse selection. In this part, I propose possible optimal policies to correct inefficiencies that may be caused in competitive markets because of asymmetries of information among agents. Specifically Part 1 contains two distinct chapters. In Chapter 1, the impact of redistributive taxation in a credit market with adverse selection is examined. The market consists of different types of entrepreneurs who need to borrow from banks to invest in stochastic technologies. Adverse selection leads to credit rationing, and the economy is characterised by low aggregate investment and constrained suboptimal allocations. It is shown that an anonymous, redistributive budget-balanced tax system can increase aggregate investment and lead to Pareto improvements. Unlike what is usually believed, it is shown that every entrepreneur benefits from the tax system, even if, in expectation, high-productivity entrepreneurs pay in taxes more than they receive in subsidies. In Chapter 2, I model a competitive insurance market with adverse selection as an "informed-principal game". The informed buyer offers a set of contracts to all uninformed sellers, who accept or reject. If all sellers reject, then there is no trade. Otherwise, each one of the sellers who accepted has the right to add more contracts to the already existing offer if he wishes so. The buyer can choose one contract from one seller at the last stage of the game. I characterise the set perfect Bayesian equilibria of this game. I show that the well-known Rothschild-Stiglitz-Wilson (RSW) allocation places a lower bound in the equilibrium payoff of each type and is the unique equilibrium allocation (or a "strong solution") when it is not Pareto dominated. Every interim incentive efficient allocation, that weakly Pareto dominates the RSW allocation, is an equilibrium allocation. Bertrand-type competition among sellers drives expected profits to zero and demands every equilibrium allocation to be interim incentive efficient. The approach extends to any finite number of types and states, and to other similar markets like credit, labour or informed seller markets. 0.2 Strategic Experimentation in R&D Races: Part 2 of the thesis is a joint work with Abhinay Muthoo, Alex Gershkov and Motty Perry with equal shares in all aspects of the paper. In this part, we study a patent race between two firms as a two-armed bandit model. The first firm that successfully completes two phases (R&D) acquires a patent license. Each firm can learn from its rival's actions and outcomes. We show that two possible inefficiencies can be observed in equilibrium. On the one hand, spill-overs of information reduce the expected profitability of the patent and therefore firms may invest inadequately in R&D, in the fear of releasing good news to the market. On the other hand, an opposite, "tragedy-of-the-commons", effect may prevail, according to which R&D investment is socially excessive.

Chapter 2 analyzes the political economy of delayed agreements over fiscal reforms, in a setting where two interest groups can bargain over the allocation of the cost of the stabilization, using an alternating offers model. This contrasts with Alesina and Drazen (1991), where the group that concedes earlier bears a fixed disproportionate share of the burden. This allows a systematic comparison of expected delay in the bargaining game, i.e., "the coalition government" and in the concession game, i.e., "the divided government". When interest groups are sufficiently patient, or when shares in the concession game are highly unequal, agreement is reached more quickly on average under bargaining. Both games have the common feature that delay signals the "toughness" of interest groups. Chapter 3 compares default incentives in competitive sovereign debt markets when leaders can be either democratically elected or dictators. When leaders can be replaced, the incentives for repayment are mainly the ego rents from office. In a dictatorship, the cost of defaulting is the permanent loss of reputation and the loss of future access to credit. There is a trade off between repayment and risk sharing under the state-contingent optimal contracts. We show that when ego rents are high and value of reputation to dictators is low, democracies have an incentive to repay more in good states and repay less in bad states. Thus the democratic leader defaults more often, improving risk-sharing. Chapter 4 examines the political economy of sovereign debt crises, using newly established data from 81 countries between 1975 and 2010. The empirical results validate that political factors matter for debt sustainability. I find that in a democracy, the parliamentary system is less likely to reschedule their external debt than a presidency, while rescheduling propensity of a country is increased by political instability. Also results show that public creditors (The Paris Club) tend to give a "democratic advantage" as a foreign assistance to democratic countries, in contrast with private creditors (The London Club).

This research thesis aims to add to the understanding of industrial distribution systems and to develop our ability to model such systems. The work is empirically based, taking a particular distribution system, studying it in depth and observing it during a period of change and reorganisation. The thesis is also part of a wider research programme to investigate the problems of applying Operation Research to decision making in unstable environments. Change in distribution systems often provides good examples of this form of decision making, and some tentative generalisations are drawn as a contribution to this wider programme. Empirical research into either distribution systems or decision making in unstable environments poses the problem of access. A characteristic of this form of decision making is its informality, without the usual stress on committees and reports found with more formal long range planning. In order to ensure access to the real decision making process the researcher became an indispensable part of that process. The research method adopted was of a type since become known as the dual researcher/change agent type. With this method the researcher had the two responsibilities of solving the particular problem while recording material as objectively as possible for research analysis. Hence a subobjective of the research programme was a project to diagnose and cure a problem arising in the distributive system under study. To do this two models were developed. Firstly a channel choice model which summarised the economic variables of the distributive system. By exploiting a particular structure inherent in the model, this could be recast into a form similar to the classical transportation algorithm. As the cost matrix was of a predominantly block-diagonal form an extended application of the saddle- point theorem allowed an efficient' dual decomposition procedure to be developed. The second model relied on attitudinal data, and attempted to model merchants’ behaviour in terms of how they construed their role in the distributive system and of the pressures placed upon them through the bargaining relationship. These models were used in tandem, the first demonstrating the ideal channel choice configuration from. the manufacturer's point of view, the second showing what could feasibly be achieved in spite of the power structure maintained by the merchants.

The present thesis contributes to the theoretical analysis of the human capital investment and participation decision of heterogeneous workers in the search and matching framework. Its aim is to characterise the equilibrium and to identify the efficiency. The first chapter of this thesis contributes to study equilibrium search and matching to consider the participation decision of heterogeneous workers who have different inherent ability level. The productivity investment decision is endogenous and wages are determined by the Nash bargain among participants. In steady-state equilibrium investment decision reveals the hold-up problem. Given overall labor market condition, equilibrium is determined by free entry condition, optimal productivity investment decision, the participation constraint plus the steady state conditions. In this model I also show that heterogeneity is not the cause of multiplicity. The second chapter utilises the previous analysis to identify those government policies that can achieve efficiency in an economy. I show that the number of labor market participants and job creation and productivity investment are inefficient owing to externalities resulting from participation decision, productivity investment and market tightness condition. Therefore, in my first best policy scenario, I find the government should subsidise training, tax labour market participation and subsidise job creation. The last chapter considers an integrated framework where social security benefits are chosen to induce optimal search by unemployed workers given the income tax structure imposed by the government. As tax policy distorts the willingness of workers to find employment, it provides a simple rule which identifies the link between optimal social security benefits paid and the tax system. Specifically in the case of a universal, linear income tax scheme, optimal social security benefits should be paid at a flat rate; i.e. all receive the same benefit level regardless of earnings which is the main contribution of the paper.