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[eng] This thesis is composed of 3 independent essays on economic theory. Each essay is meant to be read separately, including footnotes and appendices. In particular, essays 2 and 3 include specific bibliography. The general bibliography is included at the end of the thesis. The first essay reviews some well known conceptual and empirical problems that appear when economic theorists deal with preferences and choice theory, in general. While assessing those problems, the essay lays the ground for a detailed discussion of the possibility of preference learning, formation and change. The essay concludes proposing a theoretical framework to study these phenomena. The second essay, although independent from the first, is also devoted to the issue of preference change. In particular, it studies the possibility that cultural preferences evolve as a result of the combination of technological innovation and cultural transmission mechanisms. At the same time, it allows for the possibility that those cultural preferences determine the short term outcome of economic variables. In addition, it builds a framework where the combination of technological innovation, cultural transmission and economic structure lead to a process of endogenous preference heterogeneity and clustering. Hence it provides a model to understand how culture and the economic structure interact and coevolve. The third essay presents some theoretical problems that arise when using the concept of a matching function as a modelling device for the labor market. In particular, necessary conditions for the ratio of the number of matches per job searcher to be interpreted as the average job finding probability are established. References [Abel, 1990] Abel, A. B. (1990). Asset prices under habit formation and catching up with the joneses. The American Economic Review, pages 38-42. [Afriat, 1967] Afriat, S. (1967). The construction of utility functions from expenditure data. International Economic Review, 8(1):67-77. [Al-Najjar, 1993] Al-Najjar, N. (1993). Non-transitive smooth preferences. Journal of Economic Theory, 60(1):14 -41. [[Aragones et al., 2005] Aragones, E., Gilboa, I., Postlewaite, A., and Schmeidler, D. (2005). Fact-free learning. The American Economic Review, 95(5):1355-1368. [Ariely et al., 2003] Ariely, D., Loewenstein, G., and Prelec, D. (2003). coherent arbitrariness: Stable demand curves without stable preferences. The Quarterly Journal of Economics, 118(1):73-106. [Arrow, 1986] Arrow, K. (1986). Rationality of self and others in an economic system. Journal of Business, pages 385-399. [Arrow and Hahn, 1971] Arrow, K. and Hahn, F. (1971). General competitive analysis. Holden-Day San Francisco.165 [Arrow, 1959] Arrow, K. J. (1959). Rational choice functions and orderings. Economica, 26(102):121-127. [Aumann, 1962] Aumann, R. (1962). Utility theory without the completeness axiom. Econometrica: Journal of the Econometric Society, pages 445-462. [Balasko, 2003] Balasko, Y. (2003). Economies with price-dependent preferences. Journal of economic theory, 109(2):333-359. [Balzer, 1982] Balzer, W. (1982). Empirical claims in exchange economics. In Philosophy of Economics, pages 16-40. Springer. [Becker, 1962] Becker, G. (1962). Irrational behavior and economic theory. The Journal of Political Economy, pages 1-13. [Becker, 1978] Becker, G. S. (1978). The economic approach to human behavior. University of Chicago Press. [Berry and Pakes, 2007a] Berry, S. and Pakes, A. (2007a). The pure characteristics demand model. International Economic Review, 48(4):1193-1225. [Berry and Pakes, 2007b] Berry, S. and Pakes, A. (2007b). The pure characteristics demand model*. International Economic Review, 48(4):1193-1225. [Bewley, 1986] Bewley, T. (1986). Knightian uncertainty theory: part i. Yale University. [Blaug, 1992] Blaug, M. (1992). The methodology of economics: Or, how economists explain. Cambridge University Press. [Boudon, 1998] Boudon, R. (1998). Social mechanisms without black boxes. Social mechanisms: An analytical approach to social theory, 172. [Brown and Matzkin, 1996] Brown, D. and Matzkin, R. (1996). Testable restrictions on the equilibrium manifold. Econometrica: Journal of the Econometric Society, pages 1249-1262. [Bunge, 1993] Bunge, M. (1993). Realism and antirealism in social science. Theory and Decision, 35(3):207-235. [Caldwell, 1984] Caldwell, B. J. (1984). Some problems with falsificationism in economics. Philosophy of the Social Sciences, 14(4):489-495. [Chapman and Johnson, 1999] Chapman, G. B. and Johnson, E. J. (1999). Anchoring, activation, and the construction of values. Organizational Behavior and Human Decision Processes, 79(2):115 -153. [Deaton and Muellbauer, 1980] Deaton, A. and Muellbauer, J. (1980). An almost ideal demand system. The American economic review, pages 312-326.

My dissertation is composed of three chapters. In the first, I study the incentive role of information – how the strategic release of information can induce an agent to exert more effort on a project. More specifically, I focus on how feedback can be provided to a worker who is uninformed about the progress they make on a long term project. I show that delaying feedback about their performance can induce the worker to continue working on the project longer than they would were they to learn about their performance without delay. Negative feedback, due to the absence of good news, received in the early stages of the project can cause them to quit prematurely. In the second chapter, I study a model of matching between individuals and institutions. Matching models allow researchers to identify optimal allocations of individuals to school seats, medical residency programs and other positions over which individuals have preferences and for which they may differ in suitability. While we know that in models in which individuals only care about the institution they match with, stable matchings always exist, I show that when individuals also care about the the number of matches made by the institution they join, stable matchings no longer exist in general. I show that stable matchings can only be found under a set of conditions I identify. Relaxing any of these conditions leads to examples of markets with no stable matchings. In the third chapter, I set out to understand why elected politicians choose to toe the party line instead of voting on issues according to their own preferences. I find that despite the short term benefits of voting for their preferred policies, there are long-term benefits from coordinating their voting behavior among like-minded legislators. These findings provide a rationale for why political parties form among politicians with similar policy positions.

This thesis consists of five chapters. The first three chapters form an entity and deal with stochastic contest models. The fourth chapter analyzes a problem of strategic experimentation with private payoffs. In the final chapter the behavior of agents with prospect theory preferences in optimal stopping problems is analyzed. Contests and tournaments appear in many real world situations, like sports, politics, patent races, relative reward schemes in firms, or (public) procurement. In a contest multiple agents compete for a fixed prize. The first two chapters of this dissertation analyze contest models in continuous time. Both are based upon joint work with Christian Seel. In the first two chapters we introduce a new type of contest model. In our model each agent decides when to stop a privately observed Brownian motion with drift. The processes of the different players are uncorrelated. The player who stops with the highest value wins a fixed prize. Each agent observes only his own progress, but not the progress or the stopping decision of the other players. As no deviations are observable we use Nash equilibrium as the solution concept. The model is similar to an all-pay auction with complete information as the payoffs of an agent depend only on the distribution of the stopped values of the Brownian motion of the other players. Hence the question which distributions can be implemented by stopping a Brownian motion naturally arises. This question is known in the probability theory literature as the Skorokhod embedding problem. Using insights from this literature we are able to construct an equilibrium and show uniqueness of the equilibrium outcome. Using a bound on stopping times derived in ? we are able to show in the second chapter that the equilibrium we construct is also the unique equilibrium if the contest ends at a fixed point in time – given this deadline is not to short. This result is important as many real world contests have a fixed deadline. From a technical point of view we provide a method to show that equilibria in an infinite horizon game are also equilibria in the finite horizon game given the time horizon is long enough. The next paragraph describes the applications of the model. The model of the first chapter can be used to analyze the competition between fund managers. Each fund manager decides when to sell a risky asset. The performance of the asset follows a Brownian motion with drift. Assets are uncorrelated among fund managers and might go bankrupt. The fund manager who makes the highest profit by selling his asset wins a fixed prize. We show that the model has unique Nash equilibrium outcome. In this equilibrium the fund managers hold the risky asset even if it yields losses in expectation, i.e. the drift of the Brownian motion is negative. We show that the expected losses incurred in equilibrium by the fund managers are non-monotone in the expected return of the risky asset. Losses are highest if the underlying assets yields only moderate losses. In the last step we analyze the asymmetric situation where two fund managers hold assets with different expected return (drift of the Brownian motion) and riskiness (variance of the Brownian motion). We prove that in the unique Nash equilibrium outcome the weaker fund manager makes up for his disadvantage by using more risky strategies. 1The second chapter focusses on Research and Development Tournaments. Each agent decides for how long to do research and pay the associated cost. The outcome of research is uncertain and described by a Brownian motion with drift. The research progress of different agents is uncorrelated. When all agents stop, the one who made the most progress, wins a prize. All agent have to pay the cost of their research. We assume that there exists a finite deadline at which all agents are forced to stop doing research. We prove that the game has a unique Nash equilibrium outcome. If costs per time are constant, and if the riskiness of the research process (variance of the Brownian motion) converges to zero the equilibrium outcome converges to the symmetric equilibrium outcome of the symmetric all-pay auction. As the symmetric all-pay auction has multiple equilibria, this result provides an equilibrium selection criterion in favor of the symmetric equilibrium. If the variance of the Brownian motion is strictly greater zero, i.e. the outcome of research is uncertain the predictions of our model are different from those of the all-pay auction. In equilibrium each agent makes positive profits, while in the all-pay auction the agents make zero profits. Furthermore we show that the profits of the agents are increasing in their costs and variance and decreasing in the drift. Hence the agents prefer to be in a situation where research is very costly, inefficient, and risky. This has possibly implications for many real world situations as the agents have incentives to make the designer choose inefficient research targets. The third chapter of this dissertation is joint work with Matthias Lang and Christian Seel. It provides a micro-foundation of the discrete-bid all-pay auction using a continuous time contest model. More precisely we analyze the model where each agent decides when to stop a privately observed Poisson process. The processes of the agents are uncorrelated and the stopping decision of other players is not observable. As long as an agent did not stop she pays constant flow cost. There exists a finite deadline where each agent is forced to stop. We show that if the deadline is long enough the distribution over final outcomes in any Nash equilibrium equals the distribution of bids in a discrete-bid all-pay auction. Chapter four is joint work with Paul Heidhues and Sven Rady and deals with a problem of strategic experimentation. Precisely, an optimal stopping game with an infinite time horizon is analyzed in which multiple players face an identical two-armed bandit problem. At all points in time, agents choose between the deterministic payoff of zero and a risky payoff whose distribution depends on the state of the world. In the bad state of the world the risky payoff is always negative, representing the cost of experimentation. If the world is in the good state, with a small probability an experiment is successful and yields a high payoff. Because a success can only happen in the good state of the world, it fully reveals the state of the world. Similar models analyzed in literature show a free-rider problem, which means that less than the socially efficient amount of information is acquired in all Markov perfect equilibria. This free-rider problem is a consequence of the ability of agents to observe each others payoffs, which results in information being a public good. We show that when payoffs are public information even in subgame-perfect equilibria, the ensuing free- rider problem is so severe that the number of experiments is at most one plus the number of experiments that a single agent would perform. When payoffs are private information and players can communicate via cheap talk, the social opti- mal symmetric experimentation profile can be supported as a perfect Bayesian equilibrium for sufficiently optimistic prior beliefs. 2Chapter five deals with optimal stopping under prospect theory preferences and is based upon joint work with Sebastian Ebert. While expected utility theory is the leading normative theory of decision making under risk, cumulative prospect theory is a popular descriptive theory. Expected utility theory is well-studied in both static and dynamic settings, ranging from game theory over investment problems to institutional economics. In contrast, for cumulative prospect theory most research so far has focused on the static case. In this chapter, we investigate cumulative prospect theory's predictions in the dynamic context and point out fundamental properties of cumulative prospect theory. We show that already a small amount of probability weighting has strong implications for the application of prospect theory in the dynamic context. More precisely we analyze the behavior of a naive agent with cumulative prospect theory preferences in continuous time optimal stopping problems. We prove that naive agent will never stop a non-degenerate diffusion process that represents his wealth. This holds for a very large class of processes, and independently of the reference point and the curvatures of the value and weighting functions. This dynamic result is a consequence of a static result that we call skewness preference in the small: At any wealth level there exists an arbitrarily small right-skewed gamble that a prospect theory agent wants to take. By choosing a proper stopping strategy the agent can always implement such a gamble and thus never stops. We illustrate the implications for dynamic decision problems such as irreversible investment, casino gambling, and the disposition effect.

This paper analyzes the opposition between the "liberals» and "statists» in the Russian political and economic thought. It demonstrates that the economic liberalization is an absolute prerequisite for the transition to sustainable socio-economic development. Such development must rely on investment activities of the state, which in the current circumstances is a necessary but not sufficient measure for reversing the negative trends. The negative developments can be prevented only through implementation, along with the institutional changes in the economic area that form a strata of economically independent entrepreneurs-innovators, of no less profound transformation in political institutions aimed at democratization of public life. © 2015 The Journal of Economic Theory.

Switzerland is often viewed as a federalist curiosity and a unique form of direct democracy. But this view does not provide a proper understanding of the country. A theory of Switzerland is necessary. A consideration of the initial, exogenous geographical situation of Swiss territory provides a better understanding of the country's development. It was out of the frac-tured geography that the institutions of federalism and direct democracy as they are known today developed and established themselves. Although there was a trend to internal centralisation in the 20th century, the regional authorities have maintained their autonomy considerably better in Switzerland than in other states. An important factor is that the federal government, cantons and municipalities are each responsible for their own finances and debts. This stabilises not only the budget of regional and local authorities but also prevents interference on the part of the central government.

Despite the important role played by GATT in the world economy, economists have not developed a unified theoretical framework that interprets and evaluates the principles that form the foundation of GATT. Our purpose here is to propose such a framework. Working within a general equilibrium trade model, we represent government preferences with a very general formulation that includes all the major political-economy models of trade policy as special cases. Using this general framework we establish three key results. First, GATT's principle of reciprocity can be viewed as a mechanism for implementing efficient trade agreements. Second, through the principle of reciprocity countries can implement efficient trade agreements if and only if they also abide by the principle on nondiscrimination. And third, preferential agreements undermine GATT's ability to deliver efficient multilateral outcomes through the principle of reciprocity, unless these agreements take the form of customs unions among partners that are sufficiently similar.

This paper analyzes the opposition between the «liberals» and «statists» in the Russian political and economic thought. It demonstrates that the economic liberalization is an absolute prerequisite for the transition to sustainable socio-economic development. Such development must rely on investment activities of the state, which in the current circumstances is a necessary but not sufficient measure for reversing the negative trends. The negative developments can be prevented only through implementation, along with the institutional changes in the economic area that form a strata of economically independent entrepreneursinnovators, of no less profound transformation in political institutions aimed at democratization of public life.

One of the consequences of the financial crisis of 2008 was a renewed focus on the issue of deregulation. The broadly recognized connection between the greatest economic downturn since the Great Depression and the systematic deregulation of our financial markets dating back over three decades reinvigorated the economic and political debate around the appropriate balance between market freedom and government regulation. This paper explores this theme historically, analyzing several economic markets that were highly regulated prior to the late 20th century. Through this analysis it establishes a foundational framework for the study of the widespread deregulation of the late 20th century. This paper first addresses the study of regulatory policy and its evolution throughout the 20th century. This section primarily focuses on the policy model proposed by George Stigler that acts as the foundational model for its conclusion. It then establishes the observed industries, the Airline and Trucking Industries, and provides evidence of their transition from industries that previously operated with strict governmental control of economic functions to markets that operated freely with little regulatory interference. This observed deregulation establishes the primary thesis question for this paper: what were the primary political and economic forces that caused the deregulation of these industries? The majority of this paper is dedicated to establishing alterations in the political and economic environment during this period that created these policy changes. This paper concludes that separate changes in the political and economic environment caused the deregulation of these industries. First, the evolution of subsystems from closed iron triangle systems to more complex issue networks granted smaller interest groups more influence on policy decisions. Thus, these groups' desired policies, which involved less regulation, received more consideration from the regulating agency. Second, the significant rise in the CPI increased the political pressure on elected officials to reduce prices. This pressure elevated the financial cost of regulating agencies to implement and maintain regulations that contributed to higher prices. These combined shifts caused a sudden, extreme removal of regulations in these markets. By establishing a causal analysis of the presented industries this paper creates a foundational case study for the broader, more complex deregulation that occurred throughout other industries during this time period.

Economic Theory is often abused in practical policy-making. There is frequently excessive focus on sophisticated theory at the expense of elementary theory; too much economic knowledge can sometimes be a dangerous thing. Too little attention is paid to the wider economic context, and to the dangers posed by political pressures. Superficially trivial distinctions between policy proposals may be economically significant, while economically irrelevant distinctions may be politically important. I illustrate with some disastrous government auctions, but also show the value of economic theory.

This paper analyzes the opposition between the «liberals» and «statists» in the Russian political and economic thought. It demonstrates that the economic liberalization is an absolute prerequisite for the transition to sustainable socio-economic development. Such development must rely on investment activities of the state, which in the current circumstances is a necessary but not sufficient measure for reversing the negative trends. The negative developments can be prevented only through implementation, along with the institutional changes in the economic area that form a strata of economically independent entrepreneurs-innovators, of no less profound transformation in political institutions aimed at democratization of public life.

This article presents a theory of labor discrimination based on the behavior of economic agents that maximize utility and profits. The article makes use of a monopsony that hires workers that have the same labor productivity, to focus on perfect discrimination; discrimination by quantities of labor hired; and discrimination by types of labor hired. The article concludes that in such contexts, workers with the same productivity may be discriminated in wages and quantities of labor hired, when firms make use of their market power; when there are differences in the opportunity costs and the wage elasticities of labor supply among workers; when there is asymmetric information, self-selection and adverse selection; and when firms or governments decide not to allow for wage discrimination. First best minimum wages may contribute to improve employment and welfare, but higher minimum wages may not.

The concept of 'the core' originates in cooperative game theory and its introduction to economics in the 1960s as a basis for proofs of existence of general equilibrium is one of the earliest attempts to use game theory to address big questions in economics. Discovery of the core was met with enthusiasm among the community of economic theorists at the time. However, use of the core eventually waned and the concept faded into the backdrop of economic theory. This paper makes use of unpublished correspondence between Herbert Scarf, Lloyd Shapley, and Martin Shubik, as well as other archival and secondary resources, to provide an account of the development of the core and the trajectory of this concept, including those who developed it, after its initial appearance. It is found that the core's eventual decline is explained by the combined effect of the slowing general equilibrium research program in the 1970s, the increasing prominence of non-cooperative game theory, and subtle issues with the concept that shaped Scarf and Shubik's research programs after the 1960s.

Economists tend to designate as normative economics that part of the theory which, according to the theorems of welfare or efficiency, create the foundation of political economy. This article defends two theses: first, that the normative is not only a part of economic theory, but also the method of building the positive economic ideas in the currently dominant neoclassical theory. This method allows that theory to claim to unify economic thought, eliminating the possibility and the necessity for alternative approaches. Nevertheless, and this is the second thesis, there are no legitimate theoretical reasons to accept this methnodology; thus it is impera tive to build a new basic theory. ; Los economistas suelen designar como economía normativa aquella parte de la teoría que, de acuerdo con los teoremas de bienestar o de la eficiencia, crea el fundamento de la política económica. Este artículo defiende dos tesis: primera, que lo normativo no sólo es una parte de la teoría económica sino, también, el método de construcción de las ideas economicas positivas de la teoría neoclásica hoy dominante. Este método permite que esta teoría pretenda unificar el pensamiento económico eliminando la posiilidad y la necesidad de enfoques alternativos. Sin embargo, y ésta la segunda tesis, no hay razones teóricas legítimas para aceptar esa metodología; de modo que es imperioso construir una nueva teoría básica.

The analysis developed attempts to present a preliminary exploration for the development of an economic theory of political systems. Using the tools of economic theory, it tries to discover the expected differences among political systems, as well as to identify some of the necessary conditions for the emergence of a particular kind of political system. The study is restricted to the particular cases of representative democracy and dictatorship. It is assumed that any society consists of three rational behaving groups of individuals: citizens, politicians and bureaucrats. Each is assumed to have a separate preference function, as well as different constraints for utility maximization. The question then is: how do political institutions constrain individual choices, and how does the set of political constraints vary with political systems. To answer these questions some relevant constraints are identified and their variations with political systems analyzed. The identified constraints are: (a) the political constitutions, (b) the size of the dominant coalition, (c) the probability of overthrow from power and the degrees of freedom available to the head of government for implementing policies that his supporting coalition does not desire, (d) the flows of information, (e) the market behavior of the citizens, (f) the costs of migration for the individuals, and (g) the behavior of the bureaucracy. The theory developed in this study presents a coherent picture of the overall fiscal performance of political systems. It finds out that all the relevant forces considered reinforce the inference that, other things being equal, democracies should be expected to exhibit larger public sector shares in national income than dictatorships. Second, it reaches the conclusion that dictatorial regimes will tend to be more inefficient, from a productivity point of view, than democracies. These two hypotheses are considered in the Appendix, but no attempt is made to test them formally on the basis of the empirical evidence presented therein. Rather, a preliminary survey is provided of some of the data and the consistency of the results is checked against the theory. The formal empirical testing of the theory is left to subsequent research. ; Ph. D.

Sanjaya Lall saw economic development as an evolutionary process, with technological learning at its heart. This essay lays out the key differences between an evolutionary theory of economic activity and change, and the neoclassical theory as articulated in economic text books. It argues that only an evolutionary theory fits what is known about how technological learning progresses. It also argues for recognition, right at the basis of economic theorizing, that modern economic systems contain a rich mix of institutions, and not simply the firms, households, and markets, that are in neoclassical theory, and that the roles of government cannot be adequately understood as simply responses to "market failures". It develops a view that long run economic change must be understood as involving the co-evolution of technologies in use and the institutional structures supporting and regulating these.