Aggregate consequences of market imperfections

This dissertation aims to analyze aggregate consequences of market imperfections. In particular, it is interested in the effects of capital market imperfections and contracting constraints on the efficiency of the allocation and, subsequently, the prospects for growth. In the first chapter, lotteries are introduced into the framework of Galor and Zeira (1993). This is a growth model with imperfect capital markets and indivisible investment permitting an individual poverty trap. Allowing for lotteries leads to a quite remarkable overturn of the original result: more severe capital market imperfections may increase aggregate consumption in finite time. Intuitively, whenever lotteries dominate an imperfect capital market as a means of capital allocation, increasing the relative attractiveness of lotteries also increases allocative efficiency. The second chapter of this dissertation analyzes the effects of intra-firm bargaining on the formation of firms under imperfect capital markets and contracting constraints. In equilibrium, wealth inequality induces a heterogenous distribution of firm sizes allowing for firms both too small and too large in terms of technical efficiency. The findings connect well to empirical facts as the missing middle of size distributions in less developed countries. The model is able to encompass a non-monotonic relationship between inequality and aggregate wealth, providing a theoretical framework for policy analysis of foreign aid and investment. The last chapter finds that non-transferabilities of utility in markets, caused by e.g. contracting constraints, may induce inefficient incentives for non-contractible investments taking place prior to markets. The timing of markets with respect to the investment affects their efficiency. Applying this results to a model of education choice and labor markets we find that markets opening only after agents have invested may exhibit inefficient over-education whereas markets that open only prior to investment do not. Hence, enforcing ex post markets by e.g. prolonging compulsory schooling, may lead to over-education and inefficient labor market allocations

Buyers, sellers and middlemen: variations in search theory

We study bilateral exchange, both direct trade and indirect trade that happens through chains of intermediaries or middlemen. We develop a model of this activity and present applications. This illustrates how, and how many, intermediaries get involved, and how the terms of trade are determined. Bargaining with intermediaries depends on how they bargain with downstream intermediaries, leading to interesting holdup problems. We discuss the roles of buyers and sellers in bilateral exchange, and how to interpret prices. We develop a particular bargaining solution and relate it to other solutions. We also illustrate how bubbles can emerge in the value of inventories.

Anticipated Utility: Some Developments in the Economic Theory of Uncertainty

This thesis is a study in the economics of uncertainty. The literature in this field has grown so rapidly that even a survey of the field as a whole would require more space than is available here. Nevertheless, I have aimed at a kind of completeness. My object has been to present an integrated development from basic notions of choice and uncertainty to theoretical and policy applications. My central claim is that Expected Utility theory has been superseded by more general models which retain its desirable properties such as transitivity and preservation of dominance while being consistent with behavior which is proscribed by Expected Utility theory but frequently observed in practice. One such general model, Anticipated Utility theory, is developed in detail in the thesis

Metadata Schema x-econ Repository

Since May 2017, the x-hub project partners OVGU Magdeburg, University of Vienna, and GESIS dispose of a new repository, called x-econ (https://x-econ.org). The service is dedicated to all experimental economics research projects to disseminate user-friendly archiving and provision of experimental economics research data. The repository x-econ contains all necessary core functionalities of a modern repository and is in a continuous optimization process aiming at functionality enhancement and improvement. x-econ is also one pillar of the multidisciplinary repository x-science (https://x-science.org). The present documentation, which is primarily based on the GESIS Technical Reports on datorium 2014|03 and da|ra 4.0, lists and explains the metadata elements, used to describe research information

Buyers, Sellers and Middlemen: Variations on Search-Theoretic Themes

We study bilateral exchange, both direct trade and indirect trade that happens through chains of intermediaries or middlemen. We develop a model of this activity and present applications. This illustrates how, and how many, intermediaries get involved, and how the terms of trade are determined. We show how bargaining with one intermediary depends on upcoming negotiations with downstream intermediaries, leading to holdup problems. We discuss the roles of buyers and sellers in bilateral exchanges, and how to interpret prices. We develop a particular bargaining solution and relate it to other solutions. In addition to contrasting our framework with other models of middlemen, we discuss the connection to different branches of search theory. We also illustrate how bubbles can emerge in intermediation.

Unbundling Risk

Scholars have explored many ways to rearrange risk outside of traditional insurance markets. An interesting literature addresses a range of innovative alternatives, including the sale of unmatured tort claims or chances at windfalls, anti-insurance, or reverse insurance, and index-based derivatives that address routine (but life-altering) risks, such as those to home values or livelihoods. Because most of this work grows out of a conviction that specific risk allocations embedded in law could be improved upon, the merits of the newly proposed risk arrangements have taken center stage. This Article, in contrast, examines questions surrounding risk customization itself such as the optimal amount of stickiness in society\u27s default risk allocations, the effects of heterogeneity in risk arrangements, and the implications (cognitive and otherwise) of starting from one risk baseline rather than another. My analysis focuses on risks faced by individuals and households, where gaps and asymmetries in risk-customization opportunities are most pronounced, and where cognitive considerations loom large. The Article develops a taxonomy of risk-shifting moves that illuminates inconsistencies in existing patterns of blocked and missing risk markets, and directs attention to untapped policy design alternatives

A Comprehensive Theory of Civil Settlement

A settlement is an agreement between parties to a dispute. In everyday parlance and in academic scholarship, settlement is juxtaposed with trial or some other method of dispute resolution in which a third-party factfinder ultimately picks a winner and announces a score. The “trial versus settlement” trope, however, represents a false choice; viewing settlement solely as a dispute-ending alternative to a costly trial leads to a narrow understanding of how dispute resolution should and often does work. In this Article, we describe and defend a much richer concept of settlement, amounting in effect to a continuum of possible agreements between litigants along many dimensions. “Fully” settling a case, of course, appears to completely resolve a dispute, and if parties to a dispute rely entirely on background default rules, a “naked” trial occurs. But in reality virtually every dispute is “partially” settled. The same forces that often lead parties to fully settle—joint value maximization, cost minimization, and risk reduction—will under certain conditions lead them to enter into many other forms of Pareto-improving agreements while continuing to actively litigate against one another. We identify three primary categories of these partial settlements: award-modification agreements, issue-modification agreements, and procedure-modification agreements. We provide real-world examples of each and rigorously link them to the underlying incentives facing litigants. Along the way, we use our analysis to characterize unknown or rarely observed partial settlement agreements that nevertheless seem theoretically attractive, and we allude to potential reasons for their scarcity within the context of our framework. Finally, we study partial settlements and how they interact with each other in real-world adjudication using new and unique data from New York’s Summary Jury Trial Program. Patterns in the data are consistent with parties using partial settlement terms both as substitutes and as complements for other terms, depending on the context, and suggest that entering into a partial settlement can reduce the attractiveness of full settlement. We conclude by briefly discussing the distinctive welfare implications of partial settlements