Essays in market design and information economics

This dissertation consists of three chapters in microeconomic theory, with a particular focus on market design and information economics. The papers develop and study applied theoretical models in order to: 1) Identify the unintended welfare effects of interventions in various markets and improve their design. 2) Understand how strategic actors take advantage of information revelation processes. The first chapter looks at the effect of wage caps on collective bargaining in the world of professional sports. Professional sports in the United States generate over 35 billion dollars yearly in revenue, which is divided between players and owners via collective bargaining. Given the stakes, some leagues instituted maximum contracts, limiting individual compensation to a percentage of team salary caps. Combining a model of a sports league with one of bargaining, I demonstrate that while these contracts limit salaries of star players, they can increase the welfare of all players. Maximum contracts reduce earning inequality and harmonize players' interests, improving collective bargaining power. The model highlights the welfare gains to be had if a heterogeneous group agrees to concessions that increase the alignment of their individual interests. My second chapter studies strategic targeting over networks. Persuaders, such as advertisers and political parties, expend vast resources targeting agents who amplify the persuaders' messages through their social network. Who should they target? To answer this, I develop a model of targeting on a network where agent beliefs evolve via a DeGroot process permitting persistence of initial beliefs. As a result, each agent is identified by their centrality and initial belief. Persuaders that want to steer the average belief of the agents in a particular direction take into account both features. Absent competition, a persuader trades-off an agent's centrality with the dissimilarity of her belief from that of the agent. With competition, a persuader considers the distribution of agents' interactions with its competitors. When competition is intense, the incentive to deter one's rival dominates. Equilibria where persuaders target those with similar beliefs arise, increasing polarization. This is in contrast to the canonical model where persuaders care only about the fraction of impressions they generate. In that case, targeting is based entirely on agent centrality. The final chapter of my dissertation examines the phenomenon of market unraveling. Labor markets are said to unravel if the matches between workers and firms occur inefficiently early, based on limited information. I argue that a significant determinant of unraveling is the transparency of the secondary market, where firms can poach workers employed by other firms. I propose a model of interviewing and hiring that allows firms to hire on the secondary market as well as at the entry-level. Unraveling arises as a strategic decision by low-tier firms to prevent poaching. While early matching reduces the probability of hiring a high type worker, it prevents rivals from learning about the worker, making poaching difficult. As a result, unraveling can occur even in labor markets without a shortage of talent. When secondary markets are very transparent, unraveling disappears. However, the resulting matching is still inefficient due to the incentives of low-tier firms to communicate that they have not hired top-quality workers. Coordinating the timing of hiring does not mitigate the inefficiencies because firms continue to act strategically to prevent poaching

Keywords: Economics.
Advisor: Jackson Matthew O. 
Kojima Fuhito
Roth Alvin E.