College of Behavioral & Social Sciences
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Item Essays on the Cognitive Foundations of Economics(2024) Yegane, Ece; Masatlioglu, Yusufcan; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In Chapter 1, I model a decision maker who observes available alternatives according to a list and stochastically forgets some alternatives. Each time the decision maker observes an item in the list, she recalls previous alternatives with some probability, conditional on those alternatives being recalled until this point. The decision maker maximizes a preference relation over the set of alternatives she can recall. I show that if every available alternative is chosen with strictly positive probability, the preference order and the list order must coincide in any limited memory representation. Under the full support assumption, the preference ordering, the list ordering and the memory parameters are uniquely identified up to the ranking of the two least preferred alternatives. I provide conditions on observable choice probabilities that characterize the model under the full support assumption. I then apply our model to study the pricing problem of a monopolist who faces consumers with limited memory. I show that when the probability of forgetting is high, the monopolist is better off charging a lower price than the optimal price in the perfect memory case. In Chapter 2, Yusufcan Masatlioglu and I study how the allocation of attention to different options and the accessibility of options from memory affect decision making. To distinguish between attention and memory, we propose a two-stage stochastic consideration set formation process. An alternative enters the decision maker’s consideration set if it is investigated in the initial attention stage and is remembered in the subsequent recall stage. In the initial attention stage, the decision maker investigates each available alternative with some alternative-specific probability. In the recall stage, the decision maker recalls each alternative that she investigated in the attention stage with some probability. The probability of recalling an alternative depends on the memorability of the alternative and its position in the order of investigation in the attention stage. Investigating an alternative more recently enhances the probability of recalling it. The decision maker chooses the option that maximizes her preference relation over her consideration set. Under the assumption that the investigation of alternatives is observable, we provide testable implications on choice behavior and show that the revealed preference, attention parameters and memory parameters can be uniquely identified from observable repeated choices.Item Microeconomic Model Analyses(2023) Ellis, Keaton Hyuckmin Kweon; Ozbay, Erkut; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)The first chapter, joint with Dr. Shachar Kariv and Professor Erkut Ozbay, compares thepredictive performance of a standard economic model to a variety of machine learning models by presenting nearly 1,000 subjects with a consumer decision problem – the selection of a bundle of contingent commodities from a budget set. Our dataset allows us to compare predictions at the individual level and relate them to the consistency of individual decisions with revealed preference axioms. Using dual measures of completeness and restrictiveness from Fudenberg et al. (2022a,b), we show that the economic model outperforms all machine learning models, with a wider margin as choices align more with an underlying preference ordering. The second chapter, joint with Professor Emel Filiz-Ozbay and Erkut Ozbay, empirically investigates the consideration and choice functions behaviors of individuals under uncertainty. Our design elicits these functions by repeating the decisions repeatedly questioning subjects in a rich lottery domain and, hence, allows subjects to reveal their stochastic or deterministic consideration and choice. Since most subjects act stochastically in both consideration and choice decisions, we focus on testing well-known axioms defined for such behavior. Our analysis includes individual-level testing of the logit model (Brady and Rehbeck (2016)), and the axioms of monotonic attention (Cattaneo et al. (2020)), and attention overload (Cattaneo et al. (2021)) for the consideration data. For the choice data, we test properties including the independence of irrelevant alternatives (Luce (1959)), regularity (Block et al. (1959)) and consistency with the attribute rule (Gul et al. (2014)). The third chapter, joint with Dr. Shachar Kariv and Professor Erkut Ozbay, extends work frmo the first chapter. We make use of rich individual-level data sets from three budgetary choice environments. The environments provide a strong test of both the intra-economic model comparisons, as well as a comparison between economic models and machine learning models. Overall, we find that the extension from two goods to three goods does not greatly reduce completeness, but does greatly increase the restrictiveness. Both standard and behavioral economic models see larger increases in restrictiveness compared to machine learning models, and a lower drop in completeness when moving from two goods to three goods. Surprisingly, there is no additional drop in completeness when moving from choice under risk to choice under ambiguity in this environment; the completeness and restrictiveness scores of all models are nearly identical across the two domains, and the minor differences that are present favor models under ambiguity. We interpret these results as favorable for standard economic models in rich choice environments: absent external factors, economic models with one parameter detailing risk preferences are sufficient to capture individual-level behavior of choice under risk and choice under ambiguity. Additionally, these models are more restrictive than machine learning models; along with the high completeness, this result indicates that the assumptions of EUT and SEU capture the regularities in choice under risk and ambiguity.Item Essays on Speculation, Joint Bidding, and Dynamic Entry in Auctions(2023) Deng, Shanglyu; Ausubel, Lawrence; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation consists of three essays on auction design. In Chapter 1, I provide an introduction for the following chapters. In Chapter 2, I examine speculation in procurement auctions, where speculators may have the incentive to acquire items from multiple sellers prior to the auction in order to increase their market power and reduce competition during the auction. I show that the profitability of the speculation scheme hinges on the auction format: Speculation always generates a positive expected profit in second-price auctions but could be unprofitable in first-price auctions. This comparison in profitability is driven by different competition patterns in the two auction mechanisms. In terms of welfare, speculation causes private value destruction and harms efficiency. Sellers benefit from the acquisition offer made by the speculator. Therefore, speculation comes at the expense of the auctioneer. In Chapter 3, I consider a procurement setting where suppliers may be functionally complementary, meaning they need to collaborate to complete a complex project. I compare two methods for incorporating complementary firms into procurement auctions: allowing them to bid jointly or using combinatorial auctions, such as the VCG auction, to coordinate their collaboration. The joint bidding approach leads to a double marginalization problem, as the prime contractor must elicit private cost information from subcontractors, and then submit a bid on behalf of the group. Consequently, the joint bidding approach often underperforms the VCG auction in several aspects, including efficiency, procurement price, and support for small businesses. Chapter 4 presents both theoretical and empirical analyses for recurring auctions. Auctions for durable assets, such as land, house, or artwork, are commonly recurring, as the seller often holds a subsequent auction after a previous attempt fails. Theoretical results show that recurring auctions outperform single-round auctions in terms of efficiency and revenue when potential buyers face costly entry. This occurs because recurring auctions allow potential buyers with different values to enter at different times, which generates savings in entry costs and increases the overall probability of sale. Additionally, optimal reserve price sequences are derived for recurring auctions based on whether the seller aims to maximize efficiency or revenue. In the empirical analysis, the theory is applied to home foreclosure auctions in China, where foreclosed homes are auctioned up to three times in a row. The study identifies the structural parameters in a recurring auction model and compares the observed recurring auctions to counterfactual single-round auctions. The results are in line with theoretical predictions, showing a significant improvement in efficiency and revenue for recurring auctions over single-round auctions. Using the optimal reserve price sequences derived from our model can further enhance the performance of recurring auctions in practice.Item ADOPTION, IMPACT EVALUATION, AND TECHNICAL EFFICIENCY OF IRON BIOFORTIFIED BEAN PRODUCTION IN RWANDA(2020) Funes, Jose Elias; Sun, Laixiang; Geography; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Micronutrient malnutrition, also known as hidden hunger, is a public health problem in many developing countries. Hidden hunger limits cognitive and physical development of children and increases both children’s and adults’ susceptibility to infectious diseases. The most common outcome of iron deficiency is anemia and in Rwanda, iron micronutrient malnutrition is highly pervasive. Thirty seven percent of children under five years of age and nearly 20 percent of women of childbearing age suffer from anemia in the country. Since 2012, HarvestPlus and its partners have been intensively disseminating iron biofortified common beans (Phaseolus Vulgaris) (IBB) varieties to help alleviate iron deficiency in Rwanda. On one hand, Rwandan farmers may be uncertain about the economic returns of this new technology owing to insufficient knowledge about the types and costs of inputs needed, the yield distribution, expected market prices, and the demand for the produce. On the other hand, policy makers and donors cannot observe the outcomes that bean farmers would experience under all treatments of the IBB program. The counterfactual outcomes that a bean farming household would have experienced under other treatments are not observable. In this context, this dissertation uses a multiprong analytical framework to: 1) analyze how peer interactions, households and farm characteristics, as well as regional factors influence smallholder farming households’ decisions to grow IBB varieties, 2) evaluate the impact of the IBB program on Rwandan farmer’s livelihoods, focusing on the outcomes of yields and incomes for beneficiary households, and 3) estimate the impact of the IBB program on smallholder farming households’ technical efficiency. The spatial econometric results indicate spatial interdependence in smallholder farming households' decisions to adopt IBB. In addition to the directly targeted beneficiaries, the spatial parameters from the econometric analysis suggest that the biofortification program affected non-beneficiaries as well. This finding indicates that (1) a household is more likely to grow IBB if the household is near other early IBB adopters who informed them about the nutritional and yield benefits of IBB technology and (2) the propensity of a household to grow IBB varies with the characteristics of neighboring farmers. The impact evaluation analysis supports the hypothesis that IBB growers had significantly higher yields and incomes, as compared to farmers that grew non-biofortified beans, whether improved or traditional. In addition, the impact assessment shows that farmers who grew iron biofortified varieties were relatively more efficient and obtained greater bean production than the control group.Item THE CONTRASTING EFFECTS OF SOCIAL CAPITAL ON NONVIOLENT RESISTANCE: EVIDENCE FROM PERU(2020) CORONADO-CASTELLANOS, PAVEL; Birnir, Johanna; Government and Politics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation develops a model to understand the joint role of social capital and nonviolent resistance campaigns to obtain concessions and changes in public goods provision in new democracies and in democracies with weak party systems. The factors that explain variation in effectiveness among nonviolent campaigns have been understudied. By adding social capital to the analysis, this dissertation contributes to filling this theoretical and empirical void. I use data from Perú to provide empirical support to my theory. In Chapter 2, a micro-level theory of nonviolent campaigns is developed. This theory argues that by making cooperation easier, social capital increases the levels of participation in nonviolent campaigns, thereby making concessions more likely. A novel result of this theory is that it shows that social capital is a key feature of social life that can help to generate disruptive collective actions but also to prevent the use of such disruptive means. Thus, under some circumstances, social capital can help to reduce the observed disruptive actions. Chapters 3 and 4 test the theoretical propositions derived in Chapter 2 using Peruvian data. Chapter 3 finds that social capital has a negative statistically significant effect on some types of nonviolent campaigns but positive effects on other types of nonviolent campaigns. Chapter 3 also provides evidence that peasant communities’ organizations in the first half of the 20th century were product of persistence effects of early colonial extractive institutions (i.e. the mining mita) with colonial revolts as important channels of persistence. Chapter 4 shows that nonviolent campaigns and social capital form a positive interactive relationship to affect the provision of public goods at the local level. Social capital makes more likely nonviolent campaign’s success. Chapter 5 summarizes the main conclusions of this dissertation.Item Essays on Multi-Dimensional Obviously Regret-Proof Mechanisms(2020) Lin, Tzu-Yao; Ausubel, Lawrence M; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation study strategically simple mechanisms for problems of multi-dimensional allocation. Strategic simplicity is crucial to make mechanisms robust to avoid mistakes and manipulation. However, the current literature on the analysis and implementation of strategically simple mechanisms is limited, especially for markets with many goods and services. This dissertation fills this gap with three complementary but stand-alone chapters. In Chapter 1, we identify and formalize the criteria for strategic simplicity. Then we combine those criteria into a new solution concept and propose a new class of mechanism that satisfies these criteria. In Chapter 2, we analyze the cost of enforcing this new notion of simplicity. In Chapter 3, we show that the new mechanism is a good candidate in an application with substantial welfare implications. The solution concept we propose in Chapter 1 is called obvious regret-proofness (ORP). It describes conditions that regulate both the extensive form of a dynamic game and the communication between the auctioneer and the bidders. Those conditions make sure that there is a simple rule for bidders to determine his best action each time he is called to play. Also, it is easy for the bidder to understand and to verify that he will not regret choosing this action because the optimality of this action does not depend on the choices of other bidders. We then translate those requirements into auction rules and propose a new class of mechanisms called Persistent Exit Descending (PED) mechanisms. Then in Chapter 2, we analyze the cost of pursuing strategic simplicity by implementing the PED mechanism. We first show that for an efficient strategy-proof mechanism, the allocation and payment to a bidder can be dependent on the reports of other bidders. This influence is monotonic and mutual. Therefore, the externality of a bidder’s choice can be internalized. In contrast, the influence in PED implementable mechanisms is restricted once the reports of other bidders exceed some certain thresholds. Moreover, the influence can only be one-sided, which means that if a bidder has influence over the other bidder, only if that bidder cannot influence him. Lacking the channel to influence, the decision of a bidder cannot take into account his externality to other bidders. This is the primary source of welfare loss in a PED mechanism. In Chapter 3, we show that the PED mechanism proposed in Chapter 1 is a good candidate for land assembly problems. It has the properties that most of the land assembly mechanisms in the literature fail to have, but are fundamental to land assembly problems. First, it is strategically simple. Second, its allocation rule is combinatorial. Third, it can assign non-monetary compensations to a bidder. Finally, it fully respects the owners' property rights, and it is ex-post individual rational. We then tailor the PED mechanism to the land assembly problem and apply the analytical framework from Chapter 2 to discuss the advantages and limitations of using the PED mechanism in land assembly problems.Item Essay on Contract Structure in Principal-Agent Problems with Behavioral Models(2018) Lin, Hong; Filiz-Ozbay, Emel; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Designing employment contracts in a principal-agent relationship is a key problem in the modern firm theory. This dissertation investigates this problem from three different angles, (1) the employment contracts in the labor market with procrastinating workers; (2) the behavior of members and reciprocal leaders in group competitions, where leaders can reward members discretionarily; (3) optimal employment contracts when tasks are endogenously designed. For the chapter about the employment contracts as a commitment device, I build an adverse selection model in a labor market of one firm against many workers, where the workers, if self-employed, procrastinate due to their own quasi-hyperbolic discounting. In the equilibrium, the model shows that workers with the least procrastination are self-employed and workers with the most procrastination are part-time employees in a separating equilibrium where the workers' hiring contracts differ by their quasi-hyperbolic discounting. In between, there exist specific ranges of quasi-hyperbolic discounting factors, in each of which the workers sign the same contract in a pooling equilibrium. This model leads to a “position hierarchy” within the firm as well as separation of paid-employment and self-employment in the labor market. For the chapter about the behavior of reciprocal leaders and members in group competitions, I model the model equilibrium when the leaders are reciprocal and show the existence of the pure strategy equilibrium. A laboratory group all-pay auctions was run to test for the model predictions.Item Essays on Auction Design(2018) Yan, Haomin; Ausubel, Lawrence M; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation studies the design of auction markets where bidders are uncertain of their own values at the time of bidding. A bidder's value may depend on other bidders' private information, on total quantity of items allocated in the auction, or on the auctioneer's private information. Chapter 1 provides a brief introduction to auction theory and summarizes the main contribution of each following chapter. Chapter 2 of this dissertation extends the theoretical study of position auctions to an interdependent values model in which each bidder's value depends on its opponents' information as well as its own information. I characterize the equilibria of three standard position auctions under this information structure, including the Generalized Second Price (GSP) auctions, Vickrey-Clarke-Groves (VCG) auctions, and the Generalized English Auctions (GEA). I first show that both GSP and VCG auctions are neither efficient nor optimal under interdependent values. Then I propose a modification of these two auctions by allowing bidders to condition their bids on positions to implement efficiency. I show that the modified auctions proposed in this chapter are not only efficient, but also maximize the search engine's revenue. While the uncertainty of each bidder about its own value comes from the presence of common component in bidders’ ex-post values in an interdependent values model, bidders can be uncertain about their values when their values depend on the entire allocation of the auction and when their values depend on the auctioneer's private information. Chapter 3 of this dissertation studies the design of efficient auctions and optimal auctions in a license auction market where bidders care about the total quantity of items allocated in the auction. I show that the standard uniform-price auction and the ascending clock auction are inefficient when the total supply needs to be endogenously determined within the auction. Then I construct a multi-dimensional uniform-price auction and a Walrasian clock auction that can implement efficiency in a dominant strategy equilibrium under surplus-maximizing reserve prices and achieve optimal revenue under revenue-maximizing reserve prices. Chapter 4 of this dissertation analyzes an auctioneer's optimal information provision strategy in a procurement auction in which the auctioneer has private preference over bidders' non-price characteristics and bidders invest in cost-reducing investments before entering the auction. I show that providing more information about the auctioneer's valuation over bidders' non-price characteristics encourages those favored bidders to invest more and expand the distribution of values in the auction. Concealment is the optimal information provision policy when there are two suppliers.Item Essays in Market Design(2016) Lopez Carbajal, Hector Arturo; Cramton, Peter; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation, I study three problems in market design: the allocation of resources to schools using deferred acceptance algorithms, the demand reduction of employees on centralized labor markets, and the alleviation of traffic congestion. I show how institutional and behavioral considerations specific to each problem can alleviate several practical limitations faced by current solutions. For the case of traffic congestion, I show experimentally that the proposed solution is effective. In Chapter 1, I investigate how school districts could assign resources to schools when it is desirable to provide stable assignments. An assignment is stable if there is no student currently assigned to a school that would prefer to be assigned to a different school that would admit him if it had the resources. Current assignment algorithms assume resources are fixed. I show how simple modifications to these algorithms produce stable allocations of resources and students to schools. In Chapter 2, I show how the negotiation of salaries within centralized labor markets using deferred acceptance algorithms eliminates the incentives of the hiring firms to strategically reduce their demand. It is well-known that it is impossible to eliminate these incentives for the hiring firms in markets without negotiation of salaries. Chapter 3 investigates how to achieve an efficient distribution of traffic congestion on a road network. Traffic congestion is the product of an externality: drivers do not consider the cost they impose on other drivers by entering a road. In theory, Pigouvian prices would solve the problem. In practice, however, these prices face two important limitations: i) the information required to calculate these prices is unavailable to policy makers and ii) these prices would effectively be new taxes that would transfer resources from the public to the government. I show how to construct congestion prices that retrieve the required information from the drivers and do not transfer resources to the government. I circumvent the limitations of Pigouvian prices by assuming that individuals make some mistakes when selecting routes and have a tendency towards truth-telling. Both assumptions are very robust observations in experimental economics.Item Top Income Inequality, Aggregate Saving and the Gains from Trade(2015) Tang, Lixin; Limao, Nuno; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Canonical studies of trade liberalization focus on its effects on aggregate income and on the distribution of income. The interaction between these two effects of trade liberalization has been less studied. In this dissertation, I study this interaction. More precisely, I study the relationship between international trade and income inequality, with a focus on the implications for aggregate saving and the gains from trade. I argue that accounting for the effects of international trade on income inequality among entrepreneurs can imply higher gains from trade for workers. In the second chapter, I construct a dynamic model of international trade with incomplete markets. In the model, entrepreneurs face uninsurable idiosyncratic productivity risk, and thus save. Since the most productive entrepreneurs have the highest saving rate and are the ones that export, a reduction in trade costs increases their share of total profits and their savings, which leads to a large increase in the aggregate supply of capital and increased capital accumulation. I calibrate the model using US data and examine the effects of international trade on aggregate output, the consumption of workers, and the consumption of entrepreneurs with heterogeneous productivity. In the model, international trade increases aggregate output by 2.5% and the wage of workers by 3.4%. On the other hand, while the aggregate consumption of entrepreneurs is unchanged by international trade, the increase in inequality of profits among entrepreneurs implies that the certainty-equivalent consumption of a typical entrepreneur actually decreases by 4.0%. Capital accumulation plays an important role in the model, accounting for 51.9% of the output gains from trade. To isolate the effects of the proposed mechanism, I construct a benchmark model with complete markets, in which firms with heterogeneous productivity are owned by a single entrepreneur. In this complete markets benchmark, the increase in aggregate output due to international trade is 1.8% while the increase in the wage of workers from trade is 2.7%. Therefore, the novel mechanism in my model increases the wage gains for workers by 25.9%, and the gains in aggregate output by 38.9%, compared to the complete markets benchmark. In the third chapter, I test the key predictions of the model using country-level data. Using fixed-effects (FE) regressions in a large panel of countries, I find a significant and positive correlation between trade openness and the aggregate saving rate. I find a much weaker relationship between trade openness and the investment rate. Furthermore, I show that greater trade openness has a stronger effect on the aggregate saving rate in a country where the initial top 10% share of total income (before any changes in trade openness) is higher. This is in line with my model where the increase in the aggregate saving is driven by top income earners. Additionally, I build on the gravity-based instrumental-variable (IV) approach pioneered by Frankel and Romer (1999) and extend it to a panel setting. I find a larger effect of trade openness on the aggregate saving rate in the fixed-effects panel regressions with IV than without IV. The results provide strong evidence that a supply-side channel of increased capital accumulation is operative following an increase in trade openness. In the fourth chapter, I study the relationship between the household saving rate and openness in China through the lens of the framework outlined in the second chapter. I show that there has been a large increase in top income shares both among entrepreneurs and workers over the past 30 years in China. Additionally, there is a very significant and positive correlation between top income shares and the household saving rate across Chinese counties. Using the setting of the 1992 liberalization episode, I find that provinces with a greater increase in openness experienced a larger increase in the household saving rate during the period. Taken together, the evidence is supportive of the hypothesis that greater openness increases the household saving rate in China, by increasing the share of total income received by the highest-income households who also have the highest saving rate.