Essays in networks and economic theory [electronic resource]
Keywords: Economics.

This thesis makes use of economic theory in order to explore and understand real world problems, with a particular emphasis on explorations of networks in real world settings. The first chapter, co-authored with Bobak Pakzad-Hurson, considers the matching networks of students to universities and how actions taken before the match occurs and anticipated after the match is completed can lead to different preferences over match outcomes by the agents involved. The second chapter, co-authored with Matthew O Jackson, looks at the network of military alliances between countries and formulates models of international stability arising from military and trade concerns. The final chapter investigates what can happen when various costs and distortions are introduced into the observation network of reviews left to guide the consumption choices of agents. What happens after agents match can lead to strategic behavior that is often overlooked in matching theory. In the first chapter, we demonstrate the linkage between pre- and post-match actions by introducing a game in which universities can force students to commit to majors before matriculating or to allow students to pick their majors during their studies. The interaction between ``matching forces'' (competition for higher quality partners) and ``principal-agent forces'' (moral hazard and adverse selection) leads to two different equilibria mirroring the American and English admissions systems. With monetary transfers, our model provides new insight regarding athletic scholarships. Price competition removes the surplus to enrolling top student athletes, making it impossible to sustain the American equilibrium with competitive wages. We show that a properly designed transfer cap that places additional restrictions on the way universities can pay their athletes achieves the first-best welfare outcome, and can lead to Pareto improvements over the status quo. In the second chapter, we investigate the role of networks of alliances in preventing (multilateral) interstate wars. We first show that, in the absence of international trade, no network of alliances is peaceful and stable. We then show that international trade induces peaceful and stable networks: trade increases the density of alliances so that countries are less vulnerable to attack and also reduces countries' incentives to attack an ally. We present historical data on wars and trade showing that the dramatic drop in interstate wars since 1950 is paralleled by a densification and stabilization of trading relationships and alliances. Based on the model we also examine some specific relationships, finding that countries with high levels of trade with their allies are less likely to be involved in wars with any other countries (including allies and non-allies), and that an increase in trade between two countries correlates with a lower chance that they go to war with each other. In the final chapter, I turn attention to how agents share information to improve consumption choices. Consumers rely on the shared experiences of others when making their purchasing decisions. This paper considers how real world considerations can cause problems with the aggregation of information in society. While previous work has shown that information aggregation is not guaranteed to surface the best product, analyzing agents' choices in sharing information shows that performance can be even worse than previously found. I consider three frictions. Small costs to searching for the choices of previous consumers can lead to discontinuous decreases in the social outcome. Small costs to leaving reviews result in discontinuous changes in the probability society discovers whether an item is of high quality or not. Showing people the experiences of earlier actors changes the reviews they leave. These problems are considered both from a theoretical perspective as well as an experiment investigating people's behavior.