This dissertation comprises three essays. The unifying theme is experiments used as the empirical methodology. Each essay is an independent study, but aspects of behavior related to cooperation, trust, and entitlement are present in each essay. The first essay looks at the efficiency-equality tradeoff of increasing redistribution in a small group setting. Subjects generate a stronger sense of entitlement to their labor earnings by performing a real effort task. Subjects must trust other members of their group to work in order to keep labor a profitable activity under higher levels of redistribution. We find a significant efficiency-equality tradeoff explained by lowered work incentives. Labor supply decisions also show strategic and cooperative behavior similar to behavior found in public goods experiments. The efficiency-equality tradeoff calls for a reconsideration of increasing dependence on the public sector for charity provision. The second essay investigates how the application of a role-reversal protocol affects behavior in cooperative games. Subjects play all possible player roles in the game under a role-reversal protocol. We test if behavior results from a two-role trust game are robust to applying a role-reversal protocol. We find that paying subjects for one role leads to no significant role-reversal effect whereas previous studies paying for both roles find reductions in generosity in both roles. The third essay is co-authored with Dr. James C. Cox. We test for differences in trust-related behavior under private and common property environments. Subjects participate in payoff equivalent 2-person Private Property Trust Game or Common Property Trust Game. We strengthen property right entitlements by asking subjects perform a real effort task to earn their private or common property endowments. Strengthening entitlements leads to behavioral differences in the two trust games not previously found. We find second mover generosity in response to first mover decisions is lower in the Common Property Trust Game. Second movers are relatively less generous because first movers overturn the status quo opportunity set which is most generous and signals “full trust.” Many first movers anticipate this and respond optimally by choosing extremes which signal “full trust” or “no trust” in the game.

The chapters of this dissertation examine efficiency failures in three areas of applied microeconomics: experimental economics, public finance, and game theory. In each case, we look at ways to resolve these failures to promote the public good. The first chapter, “An Experimental Test of the Pigovian Hypothesis,” looks at two different policies designed to reduce congestion in a common-pool resource (CPR). We present an experiment with training and a simplified decision task and find that subject behavior converges to the Nash prediction over a number of periods. A Pigovian subsidy effectively moves subject behavior to the pre-subsidy social optimum. Finally, we find a significant but non-persistent effect of information provision in moving subjects toward the social optimum. The second chapter, “Apples to Apples to Oranges,” looks at efficiency and equity failures across states resulting from public expenditure. This chapter introduces an extension of the Representative Expenditure System that uses regression methods and both state and metropolitan statistical area (MSA) level data, allowing for comparability of input costs, service requirements, and levels of need. The regression-based results are robust across state- and MSA-level formulations, although state-level approaches overestimate need for larger, less populous states. All regression-based results diverge from previous workload-based approaches. The third chapter, “Evading Nash Traps in Two-Player Simultaneous Games,” looks at efficiency failures in two-player simultaneous games. This chapter presents two new concepts: “détente” and “no-initiative,” in which players consider their own strategies and other-best-responses. We discuss their efficiency and descriptive properties across a set of simultaneous games.

It is of deep interest to researchers and practitioners in Information System (IS) to understand the efficacy of the traditional IS and economics theory in modern business environments such as online social networks. In the pursuit to understand such new IS phenomenon and address the gap in extant literature, my dissertation, identifies the strategies that the firms should incorporate in the presence of network effects; i.e., the increases in benefits accrued by a network user with an increase in the number of users, and its impact on consumer behavior. My first essay, challenges the traditional notion that network effects create a strong protective moat for the incumbent in network competition. I show that network effects are over rated in multi-homing setting, where users can co-exist across multiple networks under resource constraints. Over reliance on the strength of network effects by the incumbent firm in multi-homing setting, stems from extant economic theory that is applicable to single homing networks, where users has to choose one of the available networks. The first essay recommends strategies for the level of innovation and its time of delivery that firms should incorporate in order to survive and succeed in multi-homing environment. While the first essay focuses on multi-homing and the strength of network effects, the second essay revisits firm's preemption strategy in single homing setting with network effects, in order to prevent its users from migrating to a new entrant with better technology. I find that, for moderate levels of price and innovation competition, an incumbent with high reputation is better off being non-committal in its preemption. In contrast, committal preemption is apt for other combinations of reputation, innovation and price. While the first two essays focus on the impact of consumer behavior on firm strategies, the third essay delves into the impact of firm strategies on consumer behavior. In particular, I identify identity revelation policies that increase the number of successful transactions and collaborations in a socially embedded marketplace. The results imply that revealing social identities may be detrimental to negotiation and collaboration in a socially embedded marketplace -- a notion that is counter intuitive to networks that are inherently social. / text

Range disclosures of estimates, whether in an expanded auditor’s report or by managers, would be intended to communicate measurement uncertainty to investors. Knowing this information should enhance investors’ ability to identify aggressive reporting, thereby possibly increasing investor actions taken against managers. In a laboratory experiment, I find that students in a managerial reporting role (hereafter, managers) report less aggressive estimates of an asset’s value when ranges of possible estimates accompany their point estimates reported to students in an investor role (hereafter, investors), such that investor actions against managers do not increase when ranges are disclosed. However, this decline in aggressiveness is concentrated in managers with a greater degree of association with one or more of the following personalities: psychopathy, narcissism, and Machiavellianism (collectively deemed the “Dark Triad” in psychology). Notably, this result occurs because, in a regime of no range disclosure, these managers report relatively aggressive estimates to investors, irrespective of their private information about the asset’s true value, while managers exhibiting low association with any of these personalities report estimates that more accurately reflect their private information. Range disclosure disciplines the former group of managers, which suggests that requiring range disclosure would discipline the reporting of the managers who are the most prone to take advantage of investors absent the communication of this information. / text

Essays in this dissertation cover three topics in behavioral economics: social preferences, ambiguity aversion and self-control. The first essay, based on work with Aurelie Ouss, studies the behavior of individuals making decisions to punish norm violators. It addresses two types of questions. First, what parameters affect these punishment decisions? Second, what do outcomes look like when these decisions are aggregated? Experimental data show that individual punishment decisions appear to respond to individual cost and not necessarily social cost. Additionally, individuals appear not to take the probability that violators will be apprehended into account. Finally, punishment by others does not act as a perfect substitute for own punishment. These combined effects mean that aggregate levels of punishment rarely resemble those in line with commonly used benchmarks such as optimal deterrence. The second essay, based on work with Uma Karmarkar, studies how information affects valuation of ambiguous financial prospects. Experimental results show that across several domains individual valuations appear to react much more strongly to favorable information than unfavorable information. Additional studies indicate that this effect is driven by two mechanisms. The first is a bias towards the integration of favorable information. The second is an effect of ambiguity aversion, individuals appear to be averse to subjective ignorance and so unfavorable information has a positive component: it removes some of this uncertainty. The final essay looks at how dual-self (Fudenberg-Levine (2006)) decision makers can use commitment contracts to combat self-control problems and implement long-run optimal behavior. The main results show that both stick contracts, which levy a fine when an individual gives in to a temptation, and carrot contracts, which give rewards for resisting, can simulate binding commitments. However, carrots have several advantages over sticks. Sticks create a temptation to cancel the contract, carrots are less vulnerable to trembles and finally carrots allow for more flexibility. / Economics

Cox, Friedman, and Sadiraj (2008) develop a model of reciprocity, „Revealed Altruism‟, which posits that a „more generous than‟ (MGT) offer elicits a „more altruistic than‟ (MAT) response. A MGT ordering is defined by two conditions. Condition a) states that MGT is ordered by the maximum potential increase in income of the recipient, or that the more you stand to receive from an offer, the more generous it is to you. Condition b) states that the increase in maximum potential income of the recipient cannot be less than the maximum potential increase in income of the proposers. In other words, Condition b) states that an offer cannot be self-serving, but it is not specified in Cox, Friedman, and Sadiraj (2008) precisely how b) affects the MGT ordering. I propose that a violation of b) is considered self-serving and is less MGT than when b) is not violated. I then experimentally study the empirical relevance of b) using two designs that hold a) constant, comparing MGT differences implied by responses. The first design is a variant of the Lost Wallet Game (Dufwenberg & Gneezy, 2000) with a negative outside option, and the second design is a modified Investment Game (Berg, Dickhaut, & McCabe, 1995) with elements of the Dictator Game implemented by Andreoni and Miller (2002). I find no empirical support that b) affects the MGT ordering.

The first chapter reports experiments with payoff-equivalent public good and common pool games. Behavior of high-caste and low-caste Indian villagers is compared with behavior of American students in terms of economic surplus foregone or destroyed by failure of cooperation in the public good and common pool games. When information about caste is withheld no significant difference is observed in the efficiency of play between villagers and student subjects at American universities for both the public good game and the payoff-equivalent common pool game. Providing caste information leads to: (i) the lowest level of efficiency when low-caste first movers interact with a low-caste second mover, and (ii) the highest levels of efficiency when high-caste first movers engage with a high-caste second mover. Cross-caste play generates intermediate levels of efficiency. In my second chapter I examine competition and cooperation across genders and castes in India and compare the data with incentivized laboratory experiments across genders and races in the US. High-caste males (India) and White males (U.S.) choose to compete the most and are universally cooperative. In India females compete more and cooperate less when they are paired with other females but not with males. The level of cooperation among the females of either race (US) is lower than that of the White males but is insignificantly different from the level of cooperation among the African American males. In my third chapter I conducted artifactual field experiments in rural India with variations of dictator and ultimatum games. Eight treatments are played: in four we provide information that the other player is the spouse and in the remaining four variations spouse information is not provided. When subjects are unaware of playing with their spouses, they choose to keep the dictator role for themselves or not empower the other player. Male spouses make higher offers in general relative to female spouses. The divisions in these games (no spouse information) are far less equitable than in dictator games with student subjects. We find more concern for procedural fairness when subjects know they are playing with their spouses than when they do not have this information.

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