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The major purpose of this dissertation is to begin to experimentally study general equilibrium theory. Partial equilibrium analysis has been the focus of hundreds of experiments, and evidence abounds supporting the proposition that gains from trade will be realized in the market for a single good. Yet, in a general equilibrium context, almost no such documentation exists. Furthermore, general equilibrium theory is not amenable to testing via field data. Thus, at present, the theory that is the intellectual foundation of microeconomics remains untested. The natural starting point of such an investigation is the well-known Edgeworth Box environment. This involves conducting experiments within four major categories. In the first treatment, a two-person, two-good pure barter setting, subjects with given endowments effect trades over the goods. Information is incomplete but symmetric, with individuals having knowledge only of their own endowments and valuations. In the second treatment, prices are introduced to induce a budge constraint. Here, the experimenter acts as an auctioneer, adjusting prices based upon excess demand and supply. Third, the case of asymmetric information is considered, as subjects with full knowledge of both parties' endowments and valuations trade with the experimenter, who acts in a purely price-taking capacity. The final set of experiments extends the second treatment to an r-replication of the economy; here, price-taking behavior is the only individually rational strategy. The results of the barter experiments clearly support standard theoretical predictions, as all gains from trade are exhausted in virtually every case. However, one party usually captures most of these gains through superior bargaining ability. When prices are introduced there is often an initial attempt to behave strategically by at least one of the parties. However, in the limited information environment, it is rarely successful. Thus, the competitive equilibrium is almost always achieved. When information is asymmetric, however, the result is quite different; the majority of people do engage in strategic under-revelation of demand and are thus able to capture the maximum extra surplus available. The final treatment, that of the r-replication of the economy shows the surprising result that subjects in this environment cannot learn, in the alloted time, that behaving in a non-price-taking fashion is very costly.

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This dissertation analyzes problems related to the the economics of incomplete information and to the theory of matching markets. Chapter 1 defines a family of functions that measure the distance between opinions; Chapter 2 investigates how to measure the cost of an experiment; and Chapter 3 studies a model of two-sided matching with countably many agents. Chapter 1 introduces six axioms that a measure of disagreement should satisfy, and characterizes all the functions that satisfy them. The disagreement measures characterized generalize the Renyi divergences, and include the Kullback-Leibler divergence and the Bhattacharyya distance. Two applications are then studied. The first application provides a necessary and sufficient condition under which public information reduces expected disagreement between Bayesian agents. The second application shows that the measures of disagreement here defined are useful to understand trading under heterogeneous beliefs. Trade volume and gains from trade are increasing in some of the measures of disagreement. Chapter 2 introduces seven postulates for a cost of information function. The main result of this chapter is the proof that there exists a unique function that satisfies these postulates. Differently from the cost functions commonly used, the function found in Chapter 2 is independent of the experimenter’s beliefs, and it is additive in independent experiments. Similarly to other cost functions, it is increasing in the informativeness of the experiment, and it is separable in the signal realizations. Chapter 3 analyzes two-sided one-to-one matching with countably infinite agents. It shows that the set of stable matching is non-empty if and only if agents’ preferences admit a maximum on all subsets. This requires generalizing the Deferred Acceptance algorithm, which also allows to find the man-optimal and woman-optimal stable matchings. It is then shown that, like in the finite model, the set of stable matchings is a complete lattice under the preferences induced by men (or women). Unlike in finite models, the set of matched agents may vary across stable matchings and some implications for dynamic matching markets are discussed.

This dissertation addresses three topics on applied microeconomics. First, we investigate issues of market power and tax incidence in the U.S. brewing industry. Since alcohol consumption can be addictive, we derive a structural econometric model of addiction from a dynamic oligopoly game. This model identifies the degree of market power in a dynamic setting and allows us to test the hypothesis that federal tax incidence differs from state excise tax. Results indicate that beer producers have a modest market power and an increase in federal excise tax is more effective to reduce consumption than state excise taxes. Second, we estimate the effect of sulfur dioxide (S0���) emissions regulations on the productivity growth and opportunity cost of 261 phase I generating units. The Clean Air Act Amendment (CAAA) of 1990 required units to reduce emissions to 2.5 pounds per mmBTU fuel input in the phase I period (1995-99). We calculate Luenberger productivity indicators using directional technology distance function for 209 units in 1990-1999. There is more potential to reduce pure technical inefficiency since it is the main source of inefficiency in phase I period. Productivity declined, hut it i not significantly different from the productivity growth of pre-phase I. So environmental policy is successful to reduce SO��� emission without sacrificing productivity growth. Opportunity cost declined, but the opportunity cost of scrubber and "other" strategy increase. Third, we estimate the regulatory effect on strategy choice of 257 phase I units using multinomial logit model. We assume behavioral cost is a function of shadow input prices, output, SO��� emissions and regulatory variables. Results suggest regulation significantly affect choices. Units located in high-sulfur coal states are more likely to choose scrubber, allowance or "other" strategy through shadow capital price effect. Allowance trade and sales restriction negatively affect allowance, scrubber or fuel switch strategy. Non-private units are more likely to choose allowance strategy while private units are likely to choose less uncertain scrubber and fuel switch. Units subject to stringent local regulation are more likely to choose "other" strategy and scrubber and units with substitution/compensation boilers are more likely to choose allowance and "other" strategies. / Graduation date: 2003

Academisch proefschrift, Universiteit van Amsterdam, 2008. / Description based on print version record. Includes bibliographical references (p. 99-107).

This thesis comprises three essays on market microstructure, focusing on the issues of insider trading, asymmetric information and market liquidity. The first essay examines the effects of the mandatory disclosure regulations on the trading behavior of informed traders. Specifically, we compare the (perfect Bayesian) equilibrium when disclosure is mandatory to the equilibrium when insiders do not have to disclose their trades. We show that under mandatory disclosure the market becomes more efficient and more liquid, making the uninformed traders unambiguously better off. We also show that in order to conceal part of his information, under mandatory disclosure the insider may trade against his information, and, at the same time, add a random---"noise"---component to his trade order. As a result, insiders may end up buying (selling) when his information indicates the asset is overvalued (undervalued). This provides a rationale for contrarian trading. / The second essay examines trading behavior, price behavior and the informational efficiency and the informativeness of the price process in the equilibrium of a strategic trading game when some investors receive information before others. We show that the early informed investor may trade against his information to maintain his information superiority over the market. Under some conditions, subsequent price changes are positively correlated. We also find that the price process is less efficient and less informative than would be the case where there is no late-informed trader. / The third essay analyzes the infra-day behavior of market liquidity of the Toronto Stock Exchange which uses a computerized limit-order trading system. Along with previous studies, we show that the U-shaped infra-day pattern of spread does not depend on the market architecture. In addition, we confirm that bid-ask spread and market depth are two dimensions of market liquidity. Liquidity providers use both dimensions to deal with adverse selection problems. We also examine how price volatility and trading volume affect market liquidity. Price volatility is inversely related to market liquidity but trading volume is directly related to liquidity. High trading volume implies high liquidity trades and as a result, liquidity providers decrease (increase) ask (bid) price and/or increase depth at each quote.

Thesis (MEd)--University of South Australia, 1996

Thesis (Ph. D.)--Ohio State University, 1977. / Includes bibliographical references (leaves 135-143). Available online via OhioLINK's ETD Center.

Thesis--Stockholm School of Economics. / Includes bibliographical references (p. 203-213) and index.