In the first chapter we investigate the strategy of exchange rate pegging as a solution to the lack of credibility of domestic monetary policy in the context of the European Monetary System (EMS). Existing theoretical models cannot explain the following features of the EMS and its crisis in 1992: its progressive hardening from 1987 onwards; the fact that credibility was 'shared'; the progressive deterioration of credibility after the first Danish referendum without changes in the economic fundamentals. We argue that the reason lies in the fact that the literature has not incorporated the changes in the perceived prospects of EMU. We show that an adjustable peg regime that incorporates those prospects can explain the three features listed above and provide an alternative interpretation of the EMS crisis. We then focus our attention on the short-run dynamics of U.S. inflation. U.S. price inflation exhibits substantial inertia. The source of that inflation inertia is however controversial. In the second part of the thesis, we derive a wage contracting specification that implies inflation persistence to investigate the role of nominal rigidities to explain that degree of inertia. The contracting specification is derived from intertemporal optimisation under two basic assumptions: (i) wage staggering; (11) relative wage concern by wage-setters. The novelty is the analysis of relative wage concern. In chapter 2 we review the existing evidence and theoretical support pointing at relative wage concern as a fundamental factor in the wage contracting process. In chapters 3 and 4, we build a dynamic general equilibrium macromodel to study its implications. In chapter 3 we investigate two potential sources of inflation inertia: the contracting specification described above, and the lack of rationality of expectations. We then carry out a test for the source of inflation inertia. Our empirical results suggest that alternative sources of inertia beyond that imparted by the lack of full rationality of expectations are needed to characterise U.S. inflation dynamics. In chapter 4 we focus our investigation on the persistence of the real effects of money shocks. In contrast to previous models of staggered wages/prices, output and inflation persistence are robust findings of the model. Moreover, persistence results hold for all the sensible parameterisations. Given the empirical evidence in favour of the existence of a strong relative wage concern, we conclude that relative concern may be the missing piece in the money shocks persistence puzzle raised by recent literature.

The thesis consists of three chapters of self-contained empirical and theoretical studies. In Chapter 1, I examine whether the Balassa-Samuelson effect is indeed the reason behind the behaviour of the currencies of transition economies. So far, in the literature, transition Economies appear to be subject to the Balassa-Samuelson effect. This implies that their currencies experience a prolonged appreciation in real terms as their convergence goes on. However, in the current literature, the effects of the capital account have not been analyzed extensively. In this paper I show that the capital account, rather than productivity, is a key determinant of the appreciation of the currencies of transition economies. I find that a long-run relationship exists between the real exchange rate, productivity, the real interest rate differential and the capital account. Moreover, those variables are found to cointegrate in a nonlinear fashion according to a smooth transition autoregressive model. This implies that a multivariate smooth transition error correction model is the appropriate model to describe their short-run and long-run dynamics. In Chapter 2, I examine the importance of a real exchange rate target in the monetary policy of a central bank. I address that question both empirically and theoretically. Using monthly data I estimate of a structural VAR model for the Eurozone providing evidence in favour of real exchange rate targeting. I examine this case theoretically using a twocountry DSGE model; I find that when the home central bank includes a real exchange rate target in its interest rate rule, it achieves lower welfare losses compared to the Taylor rule. Contrary to similar papers, I compute the optimized coefficients in the interest rate rules considered. I show that the benefits from real exchange rate targeting at home rise as persistence in inflation and output increases. In the robustness analysis I show that a rise in the fraction of backward looking consumers affects negatively the performance of the real exchange rate targeting rule and positively that of the Taylor rule. Asymmetries in the degree of rule-of-thumb behavior in consumption have important effects, as regards the performance of a real exchange rate targeting rule. The performance of both rules is not sensitive to variations in the degree of backward looking price setting behavior . In Chapter 3, I show, using both empirical and theoretical analysis, that changes in monetary policy in one country can have important effects on other economies. My new empirical evidence shows that changes in the monetary policy behaviour of the Fed since the start of the Euro, well captured by a Markov-switching Taylor rule, have had significant effects on the behaviour of inflation and output in the Eurozone even though ECB’s monetary policy is found to be fairly stable. Using a two-country DSGE model, I examine this case theoretically; monetary policy in one of the countries (labelled foreign) switches regimes according to a Markov-switching process and this has nonnegligible effects in the other (home) country. Switching by the foreign central bank renders commitment to a time invariant interest rate rule suboptimal for the home central bank. This is because home agents expectations change as foreign monetary policy changes which affects the dynamics of home inflation and output. Optimal policy in the home country instead reacts to the regime of the foreign monetary policy and so implies a time-varying reaction of the home Central Bank. Following this time-varying optimal policy at home eliminates the effects in the home country of foreign regime shifts, and also reduces dramatically the effects in the foreign country. Therefore, changes in foreign monetary regimes should not be neglected in considering monetary policy at home.

This thesis analyses two issues in public economics: (1) water allocation in Israel; and (2) malaria prevention in Ghana. In both cases a computable general equilibrium modelling approach has been applied for policy analysis. Part I: In Israel, parliamentary investigative committees and water researchers have concluded that for decades, the administrative water allocation mechanism has mismanaged water allocation. Over subsidising of the agricultural sector, and underfunding of desalination plants, had led to a severe hydrological deficit. Critics argue that a water market allocation could solve these issues. However, the administrative allocation is crucial because it protects social value, which is not represented in a market mechanism. Part I of the thesis compares these two alternative allocation mechanisms using a general equilibrium model, for the case of Israel. The model concludes that from 1995 to 2006, the upper-bound water misallocation in Israel was relatively small, on the average of 5.5% of the potable water supply. The lower-bound value of agricultural amenities is imputed at approximately 2.3 times agricultural economic output. At the margin, introducing a water market in Israel is not recommended, i.e., net-social welfare would fall. Part II: Research that links between malaria and economic growth have, so far, used econometric approaches. These provide results that are too broad, and not particularly useful for policy analysis. We, therefore, develop a multi-region multihousehold dynamic computable general equilibrium (DCGE) model, which is calibrated to Ghana as a case study. Households are disaggregated by five epidemiological malaria regions, urban-rural divide, and income level quintiles. The model links with malaria through regional demographic effects, and labour effectiveness indices. Hypothetical interventions simulate reducing malaria prevalence by 50%, for children under-five years with varying degrees of coverage. We find that even under this limited intervention, malaria prevention clearly adds to economic growth and reduces income inequality. Our approach is particularly useful for policy makers to compare alternative intervention strategies using cost-benefit methods, which are not commonly used in health policy.

The purpose of this thesis is to analyze mechanisms that implement a social objective for two environments in which agents have incomplete information about the others’ characteristics. Agents’ beliefs about the characteristics of any particular agent are common knowledge. We consider the case where monetary transfers or costly signals are undesirable or unavailable. Chapter 1 gives an overview of the contents of the thesis. Chapter 2 studies mechanisms for resolution of bilateral conflict over a prize of common value. This conflict may be settled by a peaceful agreement or may lead to a socially inefficient outcome of war. We model explicitly the cost of war as dependent upon opponents' types which are private information. The social choice function is the probability of peaceful resolution. We assess the chances for peace in the case of no communication and a simultaneous choice by agents whether to agree to a given split proposal. We compare these chances with the probability of peaceful settlement achieved by a mechanism which solicits partial disclosure of private information. We require the truthful revelation of this information to be a dominant strategy for agents in the game induced by the mechanism. In this framework we show that unmediated communication always improves the probability of peace upon the agreement game. In chapter 3 we study a cardinal mechanism for allocation of heterogeneous indivisible goods among agents with private valuations. We assume that agents and the mechanism designer hold the same beliefs about the ex ante distribution of the multidimensional types. We relax the dominant strategy requirement for the truthful revelation to the requirement of Bayesian incentive compatibility. We provide a necessary condition for Bayesian incentive compatibility of such mechanisms for any finite number of goods and agents. We characterize the set of Bayesian incentive compatible mechanisms for the case of three objects and three agents and we analyze efficiency and fairness properties of these mechanisms. In particular, we show that in this framework an ex post efficient and envy-free mechanism may not exist for some systems of beliefs.

My thesis is a collection of three essays that consider various aspects of a skillbiased technology diffusion as well as skill premium, human capital acumulation and redistributive policies. The first chapter, co-authored with Christian Hellström, investigates the effects of skill-bisead technology change (SBTC) on income inequality and skills supply in the last 30 years in the US. In spite of the intensive debate about the effects of SBTC, its general equilibrium effects on the accumulation of skills and labor supply have been neglected. Thus, we build a dynamic general equilibrium model, in which growth is driven by skill-biased technology diffusion. Households have forward-looking expectations, and differ in terms of innate and idiosyncratic acquisition of skills. Contrary to pure technology progress models, technology diffusion models provide an explanation for the slowdown of the skill premium in the 70s compatible with the slow productivity growth. We find that first, technology diffusion raises the demand for skills and, consequently, the supply of skills. Second, skill-biased technology diffusion explains both the slowdown and the sharp increase of the skill premium observed in the 70s and 80s, respectively. In spite of the slowdown of the skill premium in the 70s, households anticipate the speed up of the technology diffusion and raise their investment in education, even during the economic slowdown. Therefore, the skills supply has continually increased since the 70s. Through a calibration exercise, we replicate the US trends for the skill-premium, skills supply, unskilled wages, consumption inequality and labor supply. The second chapter is motivated by the finding that the skill-biased technology diffusion increases both the skill-premium and skills supply in the last 30 years in the US . This chapter analyzes the effectiveness of redistributive policies in periods of technology diffusion. We build a microfounded general equilibrium model with skill-biased technology diffusion, endogenous labor supply, schooling decisions and redistributive policies. We show that, under endogenous schooling decisions, lump-sum transfers are ineffective. This policy raises the skill premium, in particular during the economic boom and in the long run, and reduces the social welfare during almost all of the technology cycle. Yet education subsidies incentivize the investment in education, decreasing the skill premium, raising the skills supply and social welfare. The investment in education tends to be counter-cyclical. On the one hand, forward-looking individuals anticipate the increase of demand for skills during the economic boom, increasing their investment in education during the economic recession. On the other hand, they also anticipate the maturation of the technology diffusion, reducing their investment in education during the economic boom. Finally, we show that education subsidies are Pareto-effcient, increasing welfare of both high- and low-skilled individuals. The third chapter endogenizes the technology diffusion path assumed in the first chapter. This chapter presents a two-sector growth model that explains the adoption of a skill-biased technology. There are two types of technology: low-tech and high-tech, and the latter is more productive and skill-biased. Technology is not embodied. To adopt high-technology, users must pay an instantaneous adoption cost, which decreases over time due to technology progress. Firms are homogeneous and act strategically, maximizing their profits given their rivals' behavior, leading to a technology sequential adoption pattern due to stock effects. We found that the decrease of the adoption cost and the increase of the technology knowledge due to learning effects leads to an increasing technology diffusion over time. The former has an constant effect over time, but for the latter, although positive, the effect is not constant, changing the speed of the technology diffusion over time.

<p> We commonly make a distinction between what we simply tend to do and what we would have done had we undergone an ideal reasoning process &mdash; or, in other words, what we would have done if we were perfectly <i> rational.</i> Formal decision theories, like Expected Utility Theory or Risk-Weighted Expected Utility Theory, have been used to model the considerations that govern rational behavior. </p><p> But questions arise when we try to articulate what this kind of modeling amounts to. Firstly, it is not clear how the components of the formal model correspond to real-world psychological or physical facts that ground judgments about what we ought to do. Secondly, there is a great deal of debate surrounding what an accurate model of rationality would look like. Theorists disagree about how much flexibility a rational agent has in weighing the risk of a loss against the value of potential gains, for example. </p><p> The goal of this project is to provide an interpretation of Expected Utility Theory whereby it explicates or represents the pressure that fundamentally governs how human agents ought to behave. That means both articulating how the components of the formal model correspond to real-world facts, and defending Expected Utility Theory against alternative formal models of rationality. </p>

<p> My dissertation studies multiple settings of economic decision making- decision making in a group, decision making by an uninformed principal, and the decision making properties of agents with differing degrees of cognitive reflection.</p><p> In the first essay, I study a problem of voting with information acquisition. I study information control in settings where such voters acquire information, but may lack control over whether it is revealed to other voters. Therefore, voters must balance their ability to inform themselves with their ability to reveal information and hence influence the actions of others. I examine and compare two different settings: private information acquisition and public information acquisition. Public acquisition improves upon private acquisition in two notable aspects. First, public acquisition eliminates low-payoff equilibria under private acquisition. Second, payoffs under public acquisition may provide all players with a higher payoff than any equilibrium payoff under private acquisition. Finally, I provide conditions when a unanimous voting rule outperforms majority rule.</p><p> In the second essay, I study a principal-agent relationship without monetary transfers. The principal is uncertain of the agent's preferences. Before observing the state of nature, agents much choose from a menu of delegation sets, where each delegation set is a set of actions. The defining property of a delegation set is that once an agent selects a delegation set he may only take actions within that set. I show that a pooling menu, a menu consisting of a single, interval (convex) delegation set, is optimal for any distribution over agent preferences. The proof used in this paper provides new intuition for the optimality of interval delegation: the payoff distributions generated by non-convex menus are mean-preserving spreads of those generated by convex menus I also provide comparative statics of the optimal contract.</p><p> In the final essay, I examine the relationship between cognitive reflection and time preferences. Using survey data, I find a positive relationship between cognitive reflection scores and consistency with different models of intertemporal choice.</p>

<p> The first of these three papers is an empirical study estimating the impact of peer academic support on university course grades. Results suggest that, on average, about twelve peer academic support sessions increase a student's course grade by approximately one full grade point, holding constant a student's academic ability and socioeconomic status. Supplemental instruction is potentially a more effective method of peer academic support than individual peer academic support sessions and low-performing students benefit more from peer academic support than high-performing students. </p><p> The second paper analyzes the educational impact of Native American tribal casino in Washington State. We empirically study the effect tribal casinos have on the dropout rate of schools located near tribal casinos. Next we examine the impact on the dropout rate from per capita payments. Since each federally recognized tribes is a sovereign nations, each tribe makes its own laws governing the payout of these payments. These payments are largely funded by casinos. In Washington State all tribes that make per capita payments put minor tribal member's payments in trust funds that are not technically accessible until the minor child turns 18. These trust funds are having an effect on the dropout rate of young Native American adults. </p><p> The third paper examines the effect of the gender of the student, tutor and professor on the duration between tutoring sessions. Results suggest that the female students have a shorter duration between tutoring sessions. The gender of the tutor or the gender of the instructor had no effect on our results however if the student and instructor were the same gender the duration between tutoring sessions shorter. This was true for both male and female students. </p>

In this dissertation, I present three essays on matching and assignment in labor economics. The first chapter presents an integrated model of occupation choice, spouse choice, family labor supply, and fertility. Two key features of the model are that occupations differ both in wages and in an amenity termed flexibility, and that children require a nontrivial amount of parental time that has no market substitute. I show that occupations with more costly flexibility, modeled as a nonlinearity in wages, have a lower fraction of women, less positive assortative mating on earnings, and lower fertility among dual-career couples. Costly flexibility may induce high-earning couples to share home production, which rewards husbands who are simultaneously high-earning and productive in child care. Empirical evidence broadly supports the main theoretical predictions with respect to the tradeoffs between marriage market and career outcomes. In the second chapter, I use the University of Michigan Law School Alumni Survey to investigate the interaction between assortative mating and the career and family outcomes of high-ability women. Women with higher earnings potential at the time of law school graduation have higher-earning spouses and more children 15 years after graduation. As the earnings penalty from reduced labor supply decreased over the sample, women with higher-earning spouses and more children reported shorter work weeks and were less likely to be in the labor force. Decreasing the career cost of non-work may have the unintended result of reducing the labor supply of the highest-ability women, as their high-earning spouses give them the option to temporarily exit the labor force. The third chapter addresses specification choice in empirical peer effects models. Predicting the impact of altering composition on student outcomes has proven an unexpected challenge in the experimental literature. I use the experimental data of Duflo et al. (2011) to evaluate the out-of-sample predictive accuracy of popular reduced form peer effects specifications. I find that predictions of the impact of ability tracking on outcomes are highly sensitive to the choice of peer group summary statistics and functional form assumptions. Standard model selection criteria provide some guidance in selecting among peer effect specifications.

Booms in house prices are usually followed by busts. This pattern is called "mean reversion." Mean reversion in housing markets has historically coincided with economic recessions across the world. Chapter 1 establishes mean reversion in U.S. data, and attempts to explain it using the dynamics of wages in cities. Chapter 2 takes a different approach. It models mean reversion resulting from speculation and uncertainty. This model explains why strong mean reversion in prices occurs in cities where it is easy to build houses, a phenomenon that Chapter 1 cannot explain. Chapter 3 takes the spirit of Chapter 2 and applies it to the optimal design of the income tax. / Economics