essays on economic theory

Open Access
Author:
Awaya, Yu
Graduate Program:
Economics
Degree:
Doctor of Philosophy
Document Type:
Dissertation
Date of Defense:
June 05, 2015
Committee Members:
  • Vijay Krishna, Dissertation Advisor
  • Kalyan Chatterjee, Committee Member
  • Neil Wallace, Committee Member
  • Adam Smith, Committee Member
Keywords:
  • Economic theory
Abstract:
This thesis consists of four chapters. The first two chapters examine a role of communication to sustain cooperation/collusion. The first chapter, written jointly with Vijay Krishna, studies a role of communication in cartels. Our analysis is carried out in Stigler’s (1964) model of oligopoly with secret price cuts. This is a repeated game with private monitoring since in the model, firms observe neither the prices nor the sales of their rivals. For a fixed discount factor, we identify conditions under which there are equilibria with "cheap talk" communication that result in near-perfect collusion—profits are close to those of a monopolist’s—whereas all equilibria without such communication are bounded away from this outcome. Thus, in our model, communication leads to higher prices and profits. The second chapter is a precursor of the first chapter. In this chapter, I examine a a model of a repeated prisoner’s dilemma, and show that cheap-talk communication is necessary in order to achieve cooperative outcomes in a long-term relationship. Unlike the first chapter, I study a continuous time model à la Abreu, Milgrom and Pearce (1991). Actions have to be held fixed for a certain period, but signals arrive continuously over time. Monitoring is private and players communicate regarding their private signals. Through communication players can aggregate private signals, and this helps them detect defections. It is shown that under certain conditions, there exists an equilibrium with communication that strictly Pareto- dominates all equilibria without communication. The third chapter constructs and analyzes a model of reputation in which reputation of a player affects not only terms but also chances of trade, and hence reputation plays an allocational role. It is shown that reputational concern can be harmful to the society once the allocational role of reputation is taken into account. More precisely, over-provision of quality may occur, even when the net value of producing a high-quality good is larger than that of low-quality a goods The last chapter, written jointly with Hiroki Fukai, is a contribution to monetary economics. There, a counter-example to the notion that money is memory is provided—one that relies on incomplete information. For it, there exists an implementable allocation with money which is not implementable with memory. The result arises because money conveys only a limited amount of information about past actions which can be beneficial in settings with incomplete information.