Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2009. / "September 2009." Cataloged from PDF version of thesis. / Includes bibliographical references. / Chapter 1 develops a non-parametric methodology for identifying contract optimality in the presence of moral hazard. Following the first order approach, a standard method of computing optimal contracts, the paper first proves two theoretical properties of the solutions to the moral hazard problem. First, we show that the profit loss (relative to the optimal contract) for given effort level has a unique lower bound. The second property is an equivalence between the first order condition (Mirrlees-Holmstrom Condition) and the Cramer-Rao Lower Bound (CRLB). These two properties provide the foundations for (1) identifying optimality, and (2) performing statistical inference on the agent's primitives based on an observed sequence of pairs of outputs and payments. The paper shows that under some weak conditions, contract optimality is identified, as long as the output generating process is additive in effort and noise. Identification does not require the agent's effort to be observed by the principal or the econometrician, and requires no knowledge of (1) the details of the contract, (2) the agent's cost of effort, (3) the agent's monetary utility, or (4) the distribution of output. Based on the approach proposed in this paper, we test contract optimality for a piece-rate contract, and estimate bounds on the profit loss for cotton weavers in Zhejiang Province, China. Chapter 2 develops a new method to justify the validity of the first order approach (FOA). We first prove that checking the validity amounts to checking the existence of a fixed point of the agent's best response against a Mirrlees-Holmstrom (MH) class contract offered by the principal, given some specifications of complemetary conditions. / (cont.) The main advantage of the current approach is the relaxation of the global concavity of agent utility. We show that under a set of mild conditions, the fixed point approach is applicable and the solution to the principal agent problem exists. In particular, if the log likelihood ratio is monotonically increasing in output but decreasing in effort, the best response correspondence against a MK contract has and only has one unique fixed point. Our approach unifies Jewitt's (1988) and Rogerson's (1985) proofs of validity of FOA, and provides a general method to judge validity of FOA. Based on the fixed-point approach, with some additional specifications, we restore Jewitt's (1988) results to situations where the distribution is not convex and the log likelihood ratio is not bounded from below (e.g., normal distribution), or there exists a limited liability constraint. Furthermore, we generalize our results to a situation where the agent's utility is non separable. In this fairly general environment, we prove a necessary and sufficient condition for the FOA to be valid, which provides an important method to identify the validity of FOA and compute the solution of the original problem. Finally, we provide a necessary and sufficient condition for a general non-linear bi-level optimization problem to be solvable based on FOA, without a convex constrained set. Chapter 3 constructs a concrete mechanism/auction to explore the consequence of imposing the ex post participation constraint. / (cont.) The main findings are: (1) In private good cases (symmetric or asymmetric), we can obtain ex post first best, ex post budget balance, at least interim incentive compatibility and ex post individual rationality (we call it ex post social efficiency), whenever the VCG mechanism runs expected surplus. And the mechanism generating an ex post monotonic payoff is generically unique (up to an ex ante side-pay). In addition, compared with standard auctions, our mechanism generates a risk-free revenue to the seller and ex post invidually rational payoff to the bidders. (2) In a general preference case with externality, we show there exists an ex post socially efficient mechanism when the number of participants is sufficiently small (n = 2). And the choice of mechanism depends on whether the quantity is endogenous or not. (3) As an implication, we provide a general discussion on how divisibility, endowment distribution and preference affect the possibility of trade. For the negative result, we show a set of conditions for non-existence of an ex post socially efficient trade, such as either utility is linear or the lowest type agent's utility is independent of his endowment, which can be regarded as stronger version of no-trade theorem (Myerson-Satterthwaite, 1983). This proposition implies non-existence of an ex post socially efficient partner dissolving mechanism. For the positive side, we provide a sufficient condition for existence of ex post socially efficient trade mechanism and show an explicit example. JEL Code: D86 D81 C12 D82 / by Rongzhu Ke. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1993. / Includes bibliographical references (leaves 167-170). / by Raul Alejandro Livas Elizondo. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2017. / Cataloged from PDF version of thesis. / Includes bibliographical references. / 1. Keeping the Little Guy Down: A Debt Trap for Informal Lending -- 2. Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design In The Field -- 3. Voluntary Market Design: Dominant Individual Rationality. / The essays in this thesis span two important and related themes in development economics: understanding and relaxing constraints to small scale entrepreneurship and designing markets in environments with weak institutional enforcement. Methodologically, the essays marshal both theory and field experimentation to study these issues. In joint work with Ernest Liu, Chapter 1 offers a new explanation for why microcredit and other forms of informal finance have so far failed to catalyze business growth among small scale entrepreneurs in the developing world, despite their high return to capital. We present a theory of informal lending that highlights two features of informal credit markets that cause them to operate inefficiently. First, borrowers and lenders bargain not only over division of surplus but also over contractual flexibility (the ease with which the borrower can invest to grow her business). Second, when the borrower's business becomes sufficiently large she exits the informal lending relationship and enters the formal sector - an undesirable event for her informal lender. We show that in Stationary Markov Perfect Equilibrium these two features lead to a poverty trap and study its properties. The theory facilitates reinterpretation of a number of empirical facts about microcredit: business growth resulting from microfinance is low on average but high for businesses that are already relatively large, and microlenders have experienced low demand for credit. The theory features nuanced comparative statics which provide a testable prediction and for which we establish novel empirical support. Using the Townsend Thai data and plausibly exogenous variation to the level of competition Thai money lenders face, we show that as predicted by our theory, money lenders in high competition environments impose fewer contractual restrictions on their borrowers. We discuss robustness and policy implications. In work with Reshmaan Hussam and Natalia Rigol, Chapter 2 explores a different facet of small-scale entrepreneurship. The impacts of cash grants and access to credit are known to vary widely, but progress on targeting these services to high-ability, reliable entrepreneurs is so far limited. We report on a field experiment in Maharashtra, India that assesses (1) whether community members have information about one another that can be used to identify high-ability microentrepreneurs, (2) whether organic incentives for community members to misreport their information obscure its value, and (3) whether simple techniques from mechanism design can be used to realign incentives for truthful reporting. We asked 1,380 respondents to rank their entrepreneur peers on various metrics of business profitability and growth potential. We also randomly distributed cash grants of about $100 to measure their marginal return to capital. We find that the information provided by community members is predictive of many key business and household characteristics including marginal return to capital. While on average the marginal return to capital is modest, preliminary estimates suggest that entrepreneurs given a community rank one standard deviation above the mean enjoy an 8.8% monthly marginal return to capital and those ranked two standard deviations above the mean enjoy a 13.9% monthly return. When respondents are told their reports influence the distribution of grants, we find a considerable degree of misreporting in favor of family members and close friends, which substantially diminishes the value of reports. Finally, we find that monetary incentives for accuracy, eliciting reports in public, and cross-reporting techniques motivated by implementation theory all significantly improve the accuracy of reports. In Chapter 3 I highlight an under appreciated facet of centralized market design of critical importance to developing economies with weak contract enforcement: often market designers cannot force participants to join a centralized market. I present a theory in which centralizing a market is akin to designing a mechanism to which people may voluntarily sign away their decision rights and propose a new desideratum for mechanism and market design, termed e-dominant individual rationality. Loosely, E-dominant individual rationality guarantees participation by assuring participants that each decentralized strategy is approximately dominated by a centralized strategy. I then provide two positive results about centralizing large markets. The first offers a novel justification for stable matching mechanisms and an insight to guide their design to achieve E-dominant individual rationality. The second result demonstrates that in large games, any mechanism with the property that every player wants to use it conditional on sufficiently many others using it as well can be modified to satisfy E-dominant individual rationality while preserving its behavior conditional on sufficient participation. The modification relies on a class of mechanisms we refer to as random threshold mechanisms and resembles insights from the differential privacy literature. / by Benjamin N. Roth. / Ph. D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1995. / Includes bibliographical references (p. 122-125). / by David Bradley Gross. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1995. / Includes bibliographical references (leaves 126-130). / by William F. Miracky. / Ph.D.

This dissertation examines competitive issues among utility-type industries characterized by oligopolistic market structures with the potential for market power. These markets are characterized by geographically-constrained competition, from a sub-national region down to the neighborhood level. Insights from this research can be used to inform policy decisions that attempt to rectify negative consequences of concentrated market structure in essential industries. Chapter 1 analyzes the potential impact that entry by public (government-owned) Internet Service Providers (ISPs) might have on investment in quality by private incumbent ISPs in local markets. The estimates indicate that the presence of a public entry threat is associated with lower maximum upload and download speeds offered by private cable and DSL providers. However, the presence of a public threat encourages private firm entry, so it is not clear that negative effects on speed are due to crowding out. In states where municipal entry is made more difficult by regulation, these effects disappear. Therefore, restrictive regulation of municipal broadband has a non-trivial effect on competition. Chapter 2 estimates the minimum number of ISPs required to bring a local market to a competitive level. The estimates, while imprecise, suggest that ISP markets become competitive with three firms, which corroborates previous research in the literature. This suggests that inducing competitive outcomes through entry promotion policies might be a reasonable goal considering the natural tendency towards oligopoly in the industry. However, the technology mix of the local market might affect policy recommendations. Chapter 3 determines if asymmetric pass-through of costs to prices occurs in wholesale electricity markets, specifically in the pass-through of natural gas prices to natural gas fueled electricity generation. I find some preliminary evidence that suggests that generator output prices respond more strongly to positive changes in the natural gas price than negative changes, and that the size of the asymmetry is more pronounced for generators who have a greater potential to exercise market power. / A Dissertation submitted to the Department of Economics in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Summer Semester 2018. / July 3, 2018. / Includes bibliographical references. / R. Mark Isaac, Professor Co-Directing Thesis; Shawn Kantor, Professor Co-Directing Thesis; Steven Perfect, University Representative; Paul Beaumont, Committee Member; Carl Kitchens, Committee Member.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1994. / Includes bibliographical references. / by Caroline Minter Hoxby. / Ph.D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1998. / Includes bibliographical references (leaves 93-98). / by Jaime Ortega. / Ph.D.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2018. / Cataloged from PDF version of thesis. / Includes bibliographical references (pages 93-95). / This thesis consists of three empirical essays in industrial organization. The first chapter examines the welfare effects of intertemporal price discrimination in market for airfare using a novel structural model of dynamic consumer search. I model how consumers search for airline tickets over time using data gathered from an internet travel agent. My model features sophisticated consumers with rational beliefs about future price movements who make optimal decisions based on their beliefs. Using data on daily price and quantity in monopoly markets, I estimate the demand for airfare and calculate consumer welfare. I compare welfare to a counterfactual market in which airlines cannot price discriminate. The second chapter quantifies the impact of company-wide incentive plans on total company performance. I identify five airlines that have introduced employee incentive programs that offer monthly bonuses to all company employees as long as the company achieves a certain performance level in flight on-time performance. I present evidence that these programs are effective at increasing employee performance in spite of the temptation to be a free rider. My analysis uses Mahalanobis matching to compare each route's performance with the best matching control flight, taking advantage of the large volume of flight data available. In the third chapter I examine the role of reputation in an online marketplace that specializes in unreliable products. Using data gathered from video game resale platform G2A, I examine how buyers and sellers utilize the wide array of reputation information available. I find that buyers on this platform have an understanding of their probability of encountering a negative transaction and will utilize more reputation information in less reliable markets. / by David Liu. / Ph. D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1995. / Includes bibliographical references. / by Christine Jolls. / Ph.D.