This thesis consists of three chapters. Using economic theory, they analyze the effect of certain changes in the environment on some variables of economic interest. The first chapter studies the effect of securitization on asset pricing when agents have heterogeneous beliefs about future dividends, prices and interest rates. The securities are constrained to belong to tranches of different payment priority, mimicking collateralized debt obligations (CDO). Securitization weakly increases the gap between the price of an underlying asset and any perceived present value of its dividends. The necessary and sufficient conditions for this increase to be strict are identified. In cases where there is a type of agent more sophisticated than all others, securitization can decrease the rate of return some agents receive without increasing the rate of return of none. The second chapter checks the robustness of a surprising result in Dekel et al. (2007). The result states that strict Nash equilibria might cease to be evolutionary stable when agents are able to observe the opponent’s preferences with a very low probability. The chapter shows that the result is driven by the assumption that there is no risk for the observed preferences to be mistaken. In particular, when a player may observe a signal correlated with the opponent’s preferences, but the signal is noisy enough, it is shown that all strict Nash equilibria are evolutionary stable. The third chapter studies one dimension of the social cost of bad public infrastructure in developing countries. It uses an extensive period of power rationing in Colombia throughout 1992 as a natural experiment and exploit exogenous spatial variation in the intensity of power rationing as an instrumental variable. It is estimated that power rationing increased the probability that a mother had a baby nine months later by five percent. Women who were exposed to the shock and had an additional child tend to be in worse socio-economic conditions more than a decade later.

IT innovation is allowing enterprises to find new ways to harness the power of information assets for decision making. This thesis presents three econometric method applications to marketing and management decisions. The first chapter empirically studies retail network product assortment decisions under uncertain underlying demand parameters using structural estimation. I use detailed data from a beverage vending machine network in Tokyo and find that agents increase the expected total revenue of the network by 19.6% than the baseline, where 12.3% is attributable to learning from the sales data, and 7.3% is attributable to agents’ informative initial belief. However, it is below the revenue when the demand parameters are known, which is 45.5% higher than the baseline. Furthermore, if the principal company could precisely process the sales data, the expected total revenue could be 39.6% higher even if the initial beliefs are no more informative than the rational expectation. The last observation indicates that there are some costs for the principal associated with the development and utilisation of sales data processing capabilities. The second chapter studies the causal effects of product recommendation by conducting a field experiment using many vending machines in railway stations that programmatically offer recommendations for consumers after recognising their characteristics via a built-in camera. We study the effects of recommending popular products and unpopular products, and ask how the effects differ across times of day and consumer characteristics. We find that both popular and unpopular product recommendations increase vending machine sales and choice probability of recommended products. But unpopular product recommendations cause opposite effects in the morning. The negative effects are mainly from male customers in crowded vending machines. We attribute the decrease in morning vending machine sales to the congestion created by recommendations. We conjecture that the negative effect on choice probabilities in the morning is because of social pressure from the surrounding consumers. In the third chapter, I derive a necessary condition for stochastic rationalisability by a set of utility functions with a unique maximiser, which I name the strong axiom of revealed stochastic preference (SARSP). I propose a test of rationality based on the SARSP that allows for any type of heterogeneity. The test can be implemented at low computational cost. Monte Carlo simulation shows that the test has an empirical size below the nominal level and relatively strong power.

The first chapter discusses the effects of uncertainty shocks on the labour market. Using US data, I show empirically that increases in unemployment are due to both an increase in the separation rate and a decrease in the job-finding rate. By contrast, standard search and matching models predict an increase in the job finding rate in response to an increase in the crosssectional dispersion of firms’ productivity levels. To explain observed responses in labour market transition rates, I develop a search and matching model in which heterogeneous firms face a decreasing returns to scale technology, firms can hire multiple workers, and job flows do not necessarily coincide with worker flows. Costly job creation is key to obtaining a decrease in the job-finding rate after an increase in uncertainty. Standard numerical solution techniques cannot be used to obtain an accurate solution efficiently and I propose an alternative algorithm to overcome this problem. The second chapter studies business cycles when markets are incomplete, nominal wages do not respond one-for-one to price level changes, and labour markets are characterized by matching frictions. During recessions, idiosyncratic labour income risk increases as workers worry about being unemployed. This induces workers to save more. We allow such precautionary savings – in principle – to end up in both an unproductive asset (money) and a productive assets (firm ownership). The increased demand for money puts deflationary pressure on prices. If nominal wages are not sufficiently responsive to deflationary pressures, wage costs and the unemployment rate are pushed up, which in turn intensifies the fear of becoming unemployed. Unemployment benefits improve welfare in our economy. The third chapter analyses the inefficiencies created in a search and matching model that allows for on-the-job search. First, the Hosios rule for the efficient level of the worker’s bargaining power is adapted in a simple model. As the average gain of a new match is lower when some job seekers already have a job, the efficient level of labour market tightness should be lower and the worker’s bargaining power higher than in a model devoid of on-the-job search. Second, the decision of when to perform on-the-job search is endogenised. Too much on-the-job search is taking place, because workers do not fully incorporate their current firms’ loss when they quit. Partial wage commitment improves the efficiency of the on-the-job search decision and the efficient level can be obtained.

This thesis contains two theoretical essays built upon the canonical models of social learning, and one that applies social learning theory to durable goods markets. The first chapter, "Non-Monotone Observational Learning", revisits the canonical social-learning model that rationalizes herding in the long run, to investigate the possibility of non-imitative behavior in the short run generated by non-monotone learning: ceteris paribus, when some predecessor(s) switch to actions revealing greater confidence in one state of the world, agents become less confident in that state. I characterize conditions on the underlying information structures that lead to non-monotone learning. In particular, in a general setting with continuous private signals, I provide a necessary condition for non-monotone learning with an argument for its plausibility, as well as two non-restrictive suffient conditions that do not rely on parametrization. The second chapter, "Does Public Information Disclosure Help Social Learning?", studies the effect of releasing exogenous public information in the canonical social-learning model that predicts incomplete learning. To improve social learning, I show that it is weakly better to postpone the disclosure of a public signal irrespective of its precision. However, such weak monotonicity no longer holds if the objective is to maximize the discounted sum of people's expected payoffs or if the model goes beyond the canonical binary setting. On the other hand, it is suboptimal to ever release a public signal less precise than people's private signals even if sophisticated releasing strategies are allowed. The last chapter, "Learning and Price Dynamics in Durable Goods Markets", is joint work with Francesco Palazzo. We study how markets for durable goods with unobservable and time-varying aggregate market conditions determine price dynamics with market participants constantly learning from public observations. We set up a dynamic auction model with two key features: first, agents enjoy heterogeneous private use values and later resell the asset; second, prices do not incorporate all available information dispersed in the economy. Informational frictions slow down learning and affect price movements asymmetrically across high and low aggregate demand states. Learning and the resale motive are the predominant force for durable goods with short resale horizons, slow time varying aggregate demand, and similar use values across agents.

Many of the problems faced by the agents to whom we delegate public decisions involve dynamic considerations. Whether it is a public official whose reputation is on the line, or a politician who faces repeated elections or who worries about how successors will alter his legacy, decisions today are made with attention to what consequences may come tomorrow. In this dissertation, I discuss dynamic problems in political economy. The common thread to all three essays will be that decision makers face dynamic incentives to protect their own interest because their policy choice today affects tomorrow's decision environment and, as a result, how other agents (the public, or rival parties) will behave further down the line. The first chapter looks at how alternation in power of (pro-rich and pro- poor) partisan political groups affects incentives to implement short and long run redistributive policies. I identify a powerful incentive for both groups to make income-equalising investments as a form of insurance against takeover by the opposing group. The second chapter studies the pressures on an appointed regulator of some risky activity in society, who cares about protecting his reputation. The regulator is held to account by the general public, which use a heuristic approach to estimating risks and assessing the performance of the regulator. The public official will trade off trying to align his policy record with current beliefs and managing how beliefs change through observing the risky activity. In the third chapter, I consider parties that compete over a one-dimensional ideological policy space but face uncertain electoral outcomes. I find that if elections are systematically biased against the incumbent, this leads to higher ideological polarisation than a bias of the same size in favour of the incumbent, because it lowers the value of winning. I endogenise incumbency biases with a model where voters learn about candidates' competence.

The financial crisis of 2007–2009 and the resultant pressures exerted on policymakers to prevent future crises have precipitated coordinated regulatory responses globally. As a result, large scale regulatory change is being enacted within this industry to protect investors and economic systems. Very little research exists, either prior to the crisis or since, on how compliance practices are managed through technology within financial organizations. The research objective of this study is to understand how institutional changes to the regulatory landscape may affect corresponding locally institutionalized operational practices within financial organizations. The study adopts an Investment Management System (IMS) as its case and investigates different implementations of this system within eight financial organizations, focused on investment activities within capital markets. This study makes a contribution by outlining a detailed review of this technology and identifying post-crisis practices for organizing compliance and the social forces influencing them through technology. Through symbolic systems, relational systems, routines and artefacts the IMS diffuses new compliance practices and further embeds existing ones. The study shows that this system is not objective and is currently in flux as this dynamic and complex environment evolves in the wake of the global financial crisis. Correspondingly, social, political and functional pressures are acting to deinstitutionalise related behaviours and practices. Yet compliance behaviours and practices are simultaneously being institutionalised through coercive, normative and mimetic mechanisms. However, the study also highlights the ability of some agents to exercise limited control on the impact of regulatory institutions. The research found evidence that some older practices persisted and so the study suggests that the institutionalization of technology induced compliant behaviour is still uncertain. The research makes an additional contribution to practitioners by distilling the findings into a model of IS capabilities for compliance and a model to measure the maturity of a firm’s compliance capabilities.

The thesis uses a neoclassical realist framework to investigate the link between economic influence and political power in China’s foreign policy, taking Kazakhstan as a case study. Over the last decades, China developed formidable relative economic capabilities that it increasingly projects externally. An in-depth look at Chinese trade, finance and investment elucidates the drivers of China’s economic influence in Kazakhstan. The analysis shows that Beijing created strong economic dependencies, which in turn introduced a steep hierarchy in the bilateral relationship that leaves Astana in a subordinate and Beijing in a dominant position. This dependency is driven by the legitimacy and revenue needs of the Kazakhstani elite, on the one hand, and China’s relative economic capabilities, guided by Beijing’s “Go Global” and “Go West” initiatives, on the other. The thesis discusses the complex array of economic institutions that project Chinese economic power into Kazakhstan and their relationship with Beijing to determine whether Kazakhstan’s economic dependence is the outcome of a deliberate policy directed by Beijing. After establishing the extent of the hierarchy and dependency of the relationship, the thesis addresses China’s ability to translate the dependency into meeting its foreign policy interests. Beijing does indeed successfully leverage this dependency to meet its political objectives, most notably in gaining access to Kazakhstani resources. Furthermore, an in-depth cases study of the Sino-Kazakhstani transboundary water dispute illustrates that Beijing can maximise its foreign policy objective of maintaining absolute sovereignty over its rivers on the back Kazakhstan’s economic dependence. However, this outcome is driven largely by Kazakhstan itself, particularly by its elite. This turns China into a hydro-hegemon, undermining its foreign policy principles of “win-win” and “mutually beneficial” cooperation.

This dissertation contains three theoretical essays on the functioning and the organization of over the counter markets. The first paper, "Is Time Enough to Alleviate Adverse Selection?," considers a dynamic adverse selection model in which sellers pay a search cost to find a new buyer. I uncover a relationship between adverse selection and the magnitude of search costs. Interestingly, small search costs may increase the severity of the adverse selection problem, ultimately leading to a lemons market. A market design intervention may mitigate adverse selection and promote full market participation. Conditional upon an adequate level of information disclosure, a per period market participation tax, coupled with a final rebate once a seller trades, introduces a credible signalling device. The second paper, "Peer Monitoring Incentives via Central Clearing Counterparties," studies how the novel introduction of mandatory clearing for over the counter financial assets may affect dealers’ incentives to monitor each other’s. The design of the loss allocation rules is crucial. To maximize peer monitoring incentives, a higher share of losses should be payed by surviving members with a greater trade exposure to the defaulting dealer. In practice, this mechanism can be implemented through variation margin haircutting. If all members should contribute, equilibrium outcomes may be inferior to what can be achieved without clearing. The third paper, "Learning and Price Dynamics in Durable Goods Markets," is joint work with Min Zhang. We set up a dynamic model with two key features: first, agents enjoy heterogeneous use values, and later resell the good; second, prices do not incorporate all available information. Informational frictions slow down learning, and affect price movements asymmetrically in high and low aggregate demand states. Learning and the resale motive are the predominant force for durable goods with short resale horizons, slow time-varying aggregate demand, and similar use values among buyers.

This thesis contains three essays on the linkages between financial markets and business cycles. The first chapter introduces a method to embed learning about asset prices (relying on past observation to predict future prices) into business cycle models in a way that retains a maximum of rationality and parsimony. This method is applied to a real business cycle model and a search model of unemployment. In the RBC model, learning about stock prices leads to counterfactual correlations between consumption, employment and investment. By contrast, the search model augmented by learning can generate realistic business cycle fluctuations. The volatility of unemployment in the data can be replicated without the need to rely on a high degree of wage rigidity. The second chapter examines the implications of a learning-based asset pricing theory for a model of firm financial frictions. Learning greatly improves asset price properties such as return volatility and predictability. In combination with financial frictions, a powerful feedback loop emerges between beliefs, stock prices and real activity, leading to substantial amplification of shocks. The model-implied subjective expectations are found to be consistent with patterns of forecast error predictability in survey data. A reaction of monetary policy to asset prices stabilises expectations and substantially improves welfare, which is not the case under rational expectations. The third chapter is concerned with the inefficiencies caused by incomplete national and international financial markets. Specifically, it examines the optimal design of an unemployment insurance scheme that operates across multiple countries in the presence of such inefficiencies. Using a two-country business cycle model with labour market search frictions, it is found that a supranational unemployment insurance scheme can be used to achieve transfers across countries without changing unemployment levels; and that the optimal unemployment insurance policy prescribes a countercyclical replacement rate due in the presence of cross-country transfers.

This thesis is composed of three chapters. In the first chapter, I show that capital reallocation is highly procyclical, in contrast to the prediction of existing businesscycle models with firm heterogeneity, where it is highly countercyclical. I argue that endogenizing the price of used capital relative to new solves this puzzle. First I show empirically that in several sectors the price of used investment goods relative to new is procyclical. Then I build a dynamic general equilibrium model with heterogeneous firms facing both aggregate and idiosyncratic productivity shocks. Used capital is an imperfect substitute for new capital because of firm-level capital specificity. In equilibrium both the price of used capital and the volume of reallocation become procyclical. The second chapter studies the link between investment irreversibility and capital utilization. I show that when it is costly to downsize, firms respond to negative transitory profitability shocks by underutilizing their capital stock. In a partial equilibrium setting I derive both analytical and numerical results on the links between the level of irreversibility, the size and persistence of the shocks and the optimal utilization decision. In an industry-equilibrium model with heterogeneous firms and aggregate shocks, I endogenize the resale price of capital as in the first chapter and show that when this price falls, the option value of idle capital rises and the aggregate utilization rate decreases. The third chapter, co-authored with Esther Hauk and Albert Marcet, studies optimal policy in a class of models of endogenous partial information. The economy is hit by multiple shocks and the policy-maker cannot observe their realizations, but only aggregate outcomes. In general the solution to this signal extraction problem cannot be separated from the solution to the problem of finding the optimal policy and we show how to solve them jointly. We apply the result to a model of optimal fiscal policy with incomplete markets and show that the endogeneity of the signal extraction may lead to highly non-linear optimal policies.