This dissertation consists of three essays on the design of regulatory systems intended to inform market participants about product quality. The central theme is how asymmetric information problems influence the incentives of customers, regulated firms, and certifiers, and the implications these distortions have for welfare and market design. The first chapter, Regulation by Information Provision, studies quality provision in New York City's elevator maintenance market. In this market, service providers maintain machines and are inspected periodically by city inspectors. I find evidence that monitoring frictions create moral hazard for service providers. In the absence of perfect monitoring, buildings rely on signals generated by the regulator to hold service providers accountable, cancelling contracts when bad news arrives and preserving them when good news arrives. Regulatory instruments, such as inspection frequency and fine levels, can therefore influence provider effort in two ways: (i) by directly changing the cost of effort (e.g. fines for poor peformance); (ii) by changing expected future revenue (through building cancellation decisions). Using a structural search model of the industry, I find that the second channel is the dominant one. In particular, I note that strengthening the information channel has two equilibrium effects: first, it increases provider effort; and second, it shifts share towards higher-quality matches since buildings can more quickly sever unproductive relationships. These findings have important policy implications, as they suggest that efficient information provision --- for example, targeting inspections to newly-formed relationships --- is a promising avenues for welfare improvement. The second chapter, Quality Disclosure Design, studies a similar regulatory scheme, but emphasizes the incentives of the certifier. In particular, I argue that restaurant inspectors in New York City are locally averse to giving restaurants poor grades: restaurants whose inspections are on the border of an A versus a B grade are disproportionately given an A. The impact of this bias is twofold: first, it degrades the quality of the information provided to the market, as there is substantial heterogeneity in food-poisoning risk even within A restaurants. Second, by making it easier to achieve passing grades, inspector bias reduces incentives for restaurants to invest in their health practices. After developing a model of the inspector-restaurant interaction, counterfactual work suggests that stricter grading along the A-B boundary could generate substantial improvements in food-poisoning rates. The policy implications of these findings depends on the source of inspector bias. I find some evidence that bias is bureaucratic in nature: when inspectors have inspection decisions overturned in an administrative trial, they are more likely to score leniently along the A-B boundary in their other inspections. However, it's not clear whether this behavior stems from administrative burden (a desire to avoid more trials) or a desire to avoid looking incompetent. Pilot programs that reduce the administrative burden of giving B grades are a promising avenue for future research. The last chapter, Real-Time Inference, also studies the incentives of certifiers, namely MLB umpires charged with classifying pitches as balls or strikes. Unlike in \textit{Quality Disclosure Design}, I find that umpire ball/strike decisions are remarkably bias-free. Previous literature on this topic has noted a tendency for umpires to --- for a fixed pitch location --- call more strikes in hitter's counts and more balls in pitcher's counts. I propose a simple rational explanation for this behavior: umpires are Bayesian. In hitter's counts, such as 3-0, pitchers tend to throw pitches right down the middle of the plate, whereas in pitcher's counts, they throw pitches outside the strike zone. For a borderline pitch, the umpire's prior will push it towards the strike zone in a 3-0 count and away from the strike-zone in an 0-2 count, producing the exact divergence in ball/strike calls noted in previous work. While implications for broader policy are not immediately obvious, I note several features of the environment that are conducive to umpires effectively approximating optimal inference, particularly the frequent, data-driven feedback that umpires receive on their performance.

This dissertation investigates consumer valuation of car characteristics with the special focus on two non-physical attributes of an automobile such as safety and comfort. Consumer valuation of automobile attributes is of interest to car manufacturers who supply the characteristics, consumers who purchase them, and policy makers who regulate the automobile. This study uses two approaches to accomplish this goal. The first one is the traditional hedonic method which calculates consumer willingness to pay for measurable components of safety and comfort, whereas the second one combines these components into comfort and safety indexes. It is argued in this study that these individual components, which can make a car safer or more comfortable, are evaluated by consumers in the broader context of safety and comfort before the final choice is made. It is also argued that this aggregation can be justified by a high degree of multicollinearity between various car attributes which has been observed in the previous hedonic studies of the automobile market. Included here is also a comprehensive discussion of econometric problems associated with the characteristics approach. The computational part is based on the new and the most extensive data set used in the hedonic literature of the automobile market. The study concludes by presenting the set of price and income elasticities of demand for the safety and comfort related variables. The results of both methods indicate that many car attributes are Giffen goods, which implies a positive relationship between the marginal willingness to pay and quantity purchased. The main reasons for these findings could be attributed to the impact of the government quality standards affecting automobiles and the shortcomings of the hedonic procedure (treatment of nonlinearities). / Ph. D.

The dissertation has three main chapters on product quality innovation. First, we compare innovation effort and social welfare between monopoly, duopoly, and the social planner in a dynamic model with quality dependent on a continuous know-how stock. The technology frontier--the largest reachable know-how socks--does not always positively depend on competitiveness, i.e. a duopoly may technologically surpass the social planner. However, social welfare is always positively tied to competitiveness. Second, with a general equilibrium model, we derive a relative price function expressing productivity and quality effects, and develop a method for inferring relative quality changes. An application to services versus goods of the US from 1946-2006 provides evidence on aggregate quality changes and suggests us to incorporate quality variations when explaining relative prices. Third, we build a two-product model where productivity changes lead to reallocations of labor between quantity production and quality innovation. The correlation between relative productivity and relative quality is negative for low-range substitutability and positive for medium-range substitutability between two products. Looking at services versus goods of the US, the correlation is negative and productivity-driven quality can play a significant role in general quality development.

This dissertation consists of three independent essays. We briefly introduce these essays in chapter 1 and leave a comprehensive introduction to each essay. Chapter 2 considers a vertically separated industry where production takes time and vertical mergers shorten production time. We investigate the impact of vertical mergers on the downstream firms' ability to collude and show that vertical mergers facilitate downstream collusion. Chapter 3 provides a theoretical foundation for a puzzling empirical observation that advertising follows an inverted U shape for some new products. Chapter 4 analyzes an incumbent's response to a competitive entry. We show that if the quality of the entrant is uncertain, the incumbent can "jam" the quality signalling of the entrant. Finally, chapter 5 summarizes main conclusions of three essays. / text