<p>This dissertation explores the implications of endognenizing the times decisions are faced for intertemporal decision-making in a variety of contexts. Chapter 1 considers a standard, expected-utility maximizer whose preferences are inferred using standard protocols that influence the decisions that the agent considers. The treatment shows how these induced decision points," if unaccounted for, can produce illusions of well-known preference anomalies. Capturing the endowment effect, if receiving a good compels the agent to consider the decision to consume it, then the willingness-to-accept (WTA) in exchange for the received good exceeds the willingness-to-pay (WTP) prior to its receipt. If eliciting time-preferences -- i.e. being asked to evaluate an intertemporal tradeoff involving different quantities of the good -- likewise compels the agent to consider the consumption decision, present bias arises in the form of a measured quasi-hyperbolic discount function with present bias factor less than one. While reconciling the preference anomalies with core principles of standard utility theory, the results also suggest that the endowment effect and present bias | generally treated as distinct phenomena | are actually manifestations of an identical decision-purview effect. In fact, the elicited present bias equals WTP/WTA.</p><p>Chapter 2 introduces a framework for bad habits (namely, addiction) based on endogenous decision points -- i.e. the times a recurring decision is faced. Cravings are interruptive decision points that force an individual to consider consumption while inflicting a small opportunity cost. By extinguishing the craving, addictive consumption brings a brief vacation from unwanted decision points. The development of a habit is jointly characterized by a rising frequency and a rising per-decision level of consumption, matching behavioral patterns that standard habit-formation models do not address. Integrating external cues, modeled as random decision points, consumption routines become regimented as addiction develops. Occasional users are most responsive to cues, while addicts are comparatively immune. With peer consumption as a decision point, the group model predicts synchronized consumption, homogeneous self-sorting, and herd behavior | including imitation of a stray peer.</p><p>Chapter 3 complements the endogenous decision points theory of addiction of the previous chapter with a multidisciplinary survey of addiction research, organized and interpreted through the lens of the theory. In particular, I present evidence to support formalizations and results for the three decision point representations: internal cravings, external cues, and peer consumption. This chapter also discusses how the theory may help integrate key addiction concepts from other elds into economic formalism. For instance, I examine the physiological microfoundations of the interval function for cravings, and explain why it can be dierent for two products (e.g. cigarettes and chewing tobacco) that deliver the same product (nicotine). Further, I describe how transitions between abstinence and addiction can be motivated solely in terms of the endogenous interval function." Finally, I propose that the formal notion of cravings as decision points may shed light on three prominent symptoms of</p> / Dissertation

<p> This dissertation contains three essays on proprietary cities. Proprietary cities have three defining feature: (1) a private, for-profit entity (the proprietor) retains land ownership; (2) the city has substantial legal and regulatory autonomy from the host country; and (3) the proprietor has a meaningful role creating and enforcing a new legal and regulatory system. The first essay offers an introduction to the idea of proprietary cities, investigating the incentives facing the proprietor and the policies the proprietor is likely to adopt. The second essay investigates governance in proprietary cities. It examines the literature on monopolies, private dispute resolution, and private police to better understand how proprietary cities might act. The third essay places proprietary cities in an institutional context. It develops an understanding of why such substantial policy changes might be allowed, and how to think about proprietary cities with regard to the new institutional literature.</p>

<p> In this dissertation, I study three problems in market design: the allocation of resources to schools using deferred acceptance algorithms, the demand reduction of employees on centralized labor markets, and the alleviation of traffic congestion. I show how institutional and behavioral considerations specific to each problem can alleviate several practical limitations faced by current solutions. For the case of traffic congestion, I show experimentally that the proposed solution is effective. In Chapter 1, I investigate how school districts could assign resources to schools when it is desirable to provide stable assignments. An assignment is stable if there is no student currently assigned to a school that would prefer to be assigned to a different school that would admit him if it had the resources. Current assignment algorithms assume resources are fixed. I show how simple modifications to these algorithms produce stable allocations of resources and students to schools. In Chapter 2, I show how the negotiation of salaries within centralized labor markets using deferred acceptance algorithms eliminates the incentives of the hiring firms to strategically reduce their demand. It is well-known that it is impossible to eliminate these incentives for the hiring firms in markets without negotiation of salaries. </p><p> Chapter 3 investigates how to achieve an efficient distribution of traffic congestion on a road network. Traffic congestion is the product of an externality: drivers do not consider the cost they impose on other drivers by entering a road. In theory, Pigouvian prices would solve the problem. In practice, however, these prices face two important limitations: i) the information required to calculate these prices is unavailable to policy makers and ii) these prices would effectively be new taxes that would transfer resources from the public to the government. I show how to construct congestion prices that retrieve the required information from the drivers and do not transfer resources to the government. I circumvent the limitations of Pigouvian prices by assuming that individuals make some mistakes when selecting routes and have a tendency towards truth-telling. Both assumptions are very robust observations in experimental economics.</p>

This dissertation consists of three essays studying economic agents making decisions under uncertainty. I introduce and study two non-standard choice models which relax different aspects of the standard model. The first essay models an agent who may be optimistic. Theories of optimism typically hypothesize that optimism is driven by agents changing their beliefs, or view of the world. I hypothesize that agents maintain their view of the world, but form optimistic beliefs by distorting the information used to update beliefs in a motivated way. I behaviorally identify the (possibly distorted) information used to update beliefs and provide a novel behavioral definition of optimism that alters Dynamic Consistency to account for both the distorted information and the optimistic nature of the distortion. The second essay models an agent who may imperfectly understand acts---mappings from states to outcomes. Given an act, I model coarse understanding using partitions of the state space: for each cell of the partition, the agent knows the set of outcomes that she could receive if the true state lies in that cell, but within each cell she is unable to match states with outcomes. A key feature of the model is that the agent may understand different acts using different partitions, which captures the idea that the structure of an act can affect the agent's understanding. This allows us to differentiate limited understanding of acts from coarse contingencies and ambiguity aversion, both related phenomena, using only static choice of acts. Our main results axiomatically characterize this model and uniquely identify the partitions used to understand acts. The third essay applies the coarse understanding model to a standard auction design setting, where bidders may imperfectly understand how the allocation and payments depend on the bid profile. The main result shows that it is optimal for the auctioneer to design the auction so that bidders fully understand their win probability and payment when truthfully revealing their type. This offers another point of contrast with the ambiguity literature, where it is optimal for the auctioneer to design the auction so that each bidder's payoff is independent of other bidders' bids.

My dissertation studies the application of economic theory in various settings. Each chapter begins with a basic intuition or question, and then develops the most appropriate methods to investigate. The questions addressed and results generated are interesting both from a theoretical and practical standpoint. The first chapter provides a general model for analyzing affiliate marketing contracts in online advertising, and presents a novel explanation for the diversity of contracts which exist in the industry. Affiliate marketing is an online, pay-per-performance advertising industry, where advertisers must specify the user action (impression of the ad, user click, final sale, etc.) on which to remunerate publishers "affiliates" who advertise on their behalf. In practice, many different actions are utilized. The main result here is that if users are heterogenous, and publishers know more about their users than advertisers, then the specified action serves as a selection mechanism that incentivizes the publisher to advertise only to a desirable set of users. Also, choosing the appropriate action minimizes expenses to the advertiser. When there are many different user types, each with varying worth to both the advertiser and publisher, achieving both of these goals requires a rich set of contractible actions. More generally, the approach used here can be implemented in other environments where asymmetric information and adverse selection play a role. The second chapter studies the rebound effect, or the increased use of energy services following an increase in the efficiency of that service. This effect is widely studied in the literature, but it usually only considered in a single-service environment. Such a framework ignores the potentially significant indirect rebound effects which occur through increased purchasing power for other services, and does not allow for joint efficiency improvements across many services, what we call ``efficiency correlation.'' We develop a household production model with two energy services and distinct but simultaneous efficiency changes to test the implications of efficiency correlation on net energy elasticities and the rebound effect. Positively correlated efficiency choices across end-uses increase technically feasible energy reductions but also drive additional rebound responses that erode these savings. Moreover, we find that negative correlation can significantly reverse any energy savings (e.g. a household installs energy-saving window panes but then trades in their sedan for a SUV), but that current Federal efficiency standards make this scenario unlikely. This paper offers new insight into a host of additional behavioral responses to efficiency improvements, particularly the incidence of efficiency correlation across different energy services, and highlights its implication for realized energy savings. The third chapter studies the effect of negative equity and landlock on household mobility and employment. This paper incorporates a novel friction -- that households which are both underwater and insolvent cannot sell their home -- into a search model where agents face a restriction of job opportunities based on their net asset positions. Ultimately, agents in deep-enough negative equity and insolvency quit searching altogether, reducing labor supply and mobility. Data from the Survey of Consumer Finances present empirical evidence which is consistent with this result. The welfare gains from removing this friction suggest that a median income earner is willing to pay about 2% of her income, or between 3-4 percentage points in additional interest on her debt to remove this constraint. This suggests that the landlock effect represents an incomplete lending market. If feasible, homeowners would be willing to compensate lenders to swap-out mortgage debt with other loans which do not constrain mobility. Removing the landlock restriction also results in higher search effort and lower durations, as households are better off being able to search and obtain better employment opportunities when they are underwater, rather than receiving interest reductions typical of current mortgage-finance policy. / text

<p> This dissertation studies the applications of reputation games in social media and finance as well as decision games in political economy. Chapter 1 develops a reputation game in which a biased but informed expert makes a statement to attract audiences. The biased expert has an ideological incentive to distort his information as well as having a reputation concern. The expert knows that his expertise may vary in different topics, while the audiences cannot identify such differences. The biased expert is more likely to announce his favorite message when he knows less about it. Moreover, the biased expert is less willing to lie when the audiences have better outside options, and such improvements in outside options may benefit both the expert and the audiences. </p><p> Chapter 2 studies a credit rating game with a credit rating agency(CRA), an issuer and an investor. The privately informed and biased CRA provides a rating on the issuer's project, and the investor decides to purchase the project or not according to the report. As long as the CRA obtains a contract, he will inflate the rating. When the default risk is high, the CRA tells the truth. Moreover, he is more likely to tell the truth when the issuer's private benefit is larger. When the default risk is low, the CRA sends a good rating. He is more likely to inflate the rating if the issuer has a higher private benefit. </p><p> Chapter 3 presents a model in secessions and nationalism, with a special emphasis on the role of civil war. In our model, a disagreement on secession between the central government and the minority group leads to disastrous military conflicts. As a result, the tremendous potential cost of the war distorts the political choice of the minority group, and helps the central government to exploit them both economically and politically. Several key ingredients, such as population, per capita income and perceived winning chance of the civil war, play an essential role in the decision making process of the minority group. I also conduct an empirical test of this model, which supports the major findings stated above.</p>

<p> Local returns to housing investment across the U.S. cities are estimated and applied to explain the stockholding puzzle, i.e. the tendency for US homeowners to hold only housing and risk free assets in their portfolios. Several empirical problems exist in the previous studies: first, rental returns are always ignored or just assumed to be constant across cities; second, the CAP rates at the city level are often based on the problematic BLS Rent Index (the BLS CAP rate) which is questioned by Ambrose et al (2014). </p><p> Using micro data from American Housing Survey (AHS), CAP rates for 38 of the largest MSAs in the U.S. (the AHS CAP rate) are estimated. Pooled OLS methods are used to control the heterogeneity in individual housing characteristics and quality differences across tenure types. As expected based on Ambrose et al (2014), AHS CAP rates are much more volatile than BLS CAP rates. Standard deviations of annual AHS CAP rates (national average value is 2.27%) are much larger than those of BLS CAP rates (national average value is 0.57%). Moreover, in inland cities, especially those in Rust Belt, AHS CAP rates reflect more rental risk than BLS CAP rates do. This divergence is smaller in coastal cities where housing price appreciation is more volatile. This implies that past research using the BLS Rent Index to analyze rental risk may be biased. </p><p> After formulating CAP rate measures for a panel of cities, this data is used to test the dividend pricing hypothesis (DPH) in housing by studying the trade-off between the capitalization rate and subsequent house price appreciation. In previous tests, even allowing for the fact that actual appreciation does not equal expected appreciation, evidence for the DPH has not been strong. This research has included an implicit assumption that risks associated with housing investment are common across housing markets. In addition, many previous tests have used BLS CAP rates or assumed that the CAP rate was constant across cities and/or over time. In this second essay, statistically constructed estimates of the AHS CAP rate and the variance in total return are used to conduct tests of the DPH. The result is far stronger than those obtained in previous studies of a cross section of U.S. cities. But, when the BLS Rent Index is used to measure CAP rates and risk, the results are not consistent with the DPH. </p><p> Finally, these findings about total return to housing investment are used to explain the stockholding paradox. Homeowners tend to hold housing and risk-free assets, but not equities or bonds in their personal portfolios. This has been called the "stockholding paradox" and has been explained by observing that the correlation between the rate of appreciation of national housing prices and returns to the S&P; 500 is relatively high. The common conclusion in the literature has been that homeowners derive only modest diversification benefits from holding stocks and choose instead to amortize their mortgages. In contrast to the empirical literature on the stockholding paradox, Brueckner (1997) has demonstrated the theoretical proposition that consumption constrained households, those whose wealth is a fraction of housing value, will not find holding the market portfolio efficient. This research proceeds from Brueckner's observation. First, total return to homeownership, including both appreciation and AHS CAP rate is measured. Second, properties of optimal portfolios for households under various degrees of consumption constraints are identified. Third, optimal portfolios of individual stocks are determined. The results show that portfolios of individual stocks, which vary by city, are far more attractive than the market portfolio for homeowners. This suggests a resolution to the stockholding puzzle. Homeowners could benefit from holding portfolios designed to offset the unique risk of the cities where they live but they lack information on what these portfolios might be. Given this information gap, holding the market portfolio is not particularly attractive for most homeowners.</p>

abstract: It is estimated there are tens of millions of street children throughout the world. Existing literature has identified the conditions street children live in; and additional research has shown how these conditions typically affect the self-esteem of children. There is also ample research to support self-esteem as a critical component to a healthy childhood development. Existing research suggests that street children should have a low self-esteem, however data has not yet been collected to examine if this is true. Existing literature has also not yet explored how the self-esteem of street children is a necessary component to economic development. Based on Amartaya Sen's development theory of capabilities, damaged self-esteem in street children could be considered a hindrance to development. This paper will examine how the self-esteem of street children is important to overall economic development. To understand if the self-esteem of street children are affected how existing literature suggests, this research examines the self-esteem of street children (n=22) in the Philippines using the Culture Free Self-Esteem Inventories 3 tool, which quantifies self-esteem levels with the Global Self-Esteem Quotient (GSEQ). In comparison to the GSEQ standardized scale, almost all street children surveyed scored below average or lower. The mean GSEQ score for the street children in Manila was below average. / Dissertation/Thesis / Masters Thesis Global Technology and Development 2015

abstract: Buyers have private information on auctioning divisible goods. Linearity could be a useful property on measuring their marginal utility on those goods or on their bidding strategies under such a share auction environment. This paper establishes an auction model with independent private-values paradigm (IPVP) where bidders have linear demand. A mechanism design approach is applied to explore the optimal share auction in this model. I discuss the most popular auction formats in practice, including Vickrey auction (VA), uniform-price auction (UPA) and discriminatory price auction (DPA). The ex-post equilibriums on explicit solutions are achieved. I found VA does not generally constitute an optimal mechanism as expected even in a symmetric scenario. Furthermore, I rank the different auction formats in terms of revenue and social efficiency. The more private information bidders keep, the lower revenue VA generates to seller, and it could be even inferior to UPA or DPA. My study aggregates dispersed private information with linearity and is robust to distributional assumption. / Dissertation/Thesis / Ph.D. Economics 2014

Conflict theory has in recent years found important applications and made contributions in fields such as economics, political sciences and evolutionary biology. Economists have examined various aspects and implications of appropriation, a typical example of conflicting economic interests, in rent-seeking models. Political scientists, focusing on political turmoil such as war, civil war and demonstration, have scrutinized the effects of conflictual outcomes on political transitions and political systems. More importantly, early human lethal conflict is being recognized as a key factor in explaining human cooperation in evolutionary biology. The first essay concerns the technical aspects of conflict theories. Two well-known forms of contest success functions predict contest outcomes from the difference between the resources of each side and from the ratio of resources. The analytical properties of a given conflict model, such as the existence of equilibrium, can be drastically changed simply by altering the form of the contest success function. Despite this problem, there is no consensus about which form is analytically better or empirically more plausible. In this essay we propose an integrated form of contest success functions which has the ratio form and the difference form as limiting cases and study the analytical properties of this function. We also estimate different contest success functions to see which form is more empirically probable, using data from battles fought in seventeenth-century Europe and during World War II. In the second essay we explore the application of conflict theory to the collective action problem in large groups. We examine critically the traditional understanding of the role of large groups in collective action using an idea initiated in evolutionary biology. Bingham uses Lanchester's square law to claim that the remote killing ability of humans and their precursors decreases the cost of punishment, when cheating behavior can be punished by other members. By modeling this technology and incorporating individual members' choice of behavior types, we show that as long as the defector is, even slightly, less collective than the punisher, the large group effect pervades. So we may conclude that the large group effect is quite robust, considering the fact that the defectors, because of their behavioral predisposition, would be reluctant to cooperate in any type of collective action. In the final essay we address conflict and cooperation from a slightly different perspective: conflict and cooperation associated with class alliances and conflict in a society. Economic and political problems have been examined primarily within the context of a dyadic relationship, i.e. between two actors. However, when two different categories of groups are considered, subgroups within these groups may have both common interests and conflicts. Appropriative activity by a ruling class of capitalists and landlords gives rise to class conflict between the ruling class and the ruled class. The struggle over the relative price between the goods of the urban manufacturing sector and the products of the agricultural sector can divide the ruling and ruled classes and unite the capitalists and the workers. Using coalitional game theory, we study the various conditions, such as the political strength of one class relative to that of other classes and the degree of economic conflict among classes, for coalition formation among these classes. We show that when the economic conflict over tariffs and the rate of appropriation escalates and one class is politically superior to others, the exclusion of that class might occur, so the originally strong class can end up being disadvantaged.