Essays on contract theory and behavioral economics

This thesis is a collection of essays on contract theory and behavioral economics. Chapter 1 proposes a model of choice under risk based on imperfect memory and self-deception. The model assumes that people have preferences over their own attributes and can, to some extent, manipulate their memories. It leads to a non-expected utility representation and provides a unified explanation for several empirical regularities: non-linear probability weights, small-stakes risk aversion, regret and the competence hypothesis. It also leads to endowment and sunk cost effects. The model implies that behavior will converge to the one predicted by expected utility theory after a choice has been made a sufficiently large number of times. Chapter 2 develops a model of competition with non-exclusive contracts in a market where consumers are time-inconsistent. Non-exclusivity creates a stark asymmetry between immediate-costs goods and immediate-rewards goods. In the former, non-exclusivity does not affect the equilibrium and, when consumers are sophisticated, the efficient allocation is achieved. When consumers are partially naive, the optimal sales tax may be either positive or negative and depends on parameters that are hard to estimate. In the case of immediate-rewards goods, however, the equilibrium features marginal-cost pricing and is always Pareto inefficient. Moreover, the optimal tax does not depend on the consumers' degree of naivete and is a function of parameters that are easy to assess. Chapter 3 is based on a joint work with Aloisio Araujo and Humberto Moreira. It considers a job-market signaling model where signals convey two pieces of information.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Economics.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2009

Author dc:creator

• Gottlieb, Daniel, Ph. D. Massachusetts Institute of Technology

Advisor dc:contributor.advisor

• Muhamet Yildiz and Bengt Holmström.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/49704

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/49704