Essays in Applied Microeconomics
Authors:   , Isztin Péter 
Published: March 2022

Each of the following five essays that constitutes the present dissertation contributes to our understanding of various micro- and macroeconomic phenomena, using the tools of microeconomic theory as well as econometrics. Four of the essays are in the applied theory, while one is in the empirical tradition of applied economics. The first essay is concerned with the phenomenon of invormation avoidance. Several studies suggest that consumers do not always value more information about the product, and they sometimes even try to avoid receiving new information. This might be due to self-image or social image concerns. However, little has been said in the literature on how such tendencies manifest themselves in a market equilibrium and what types of incentives might influence the resulting equilibrium. The essay shows that information-avoidance can occur in equilibrium, but market incentives (in particular, a higher product price) can lead to more information acquisition and accordingly better product quality. Another new result in the essay is that the possibility of suing firms for misinformation (even in cases where fraud is not present in the traditional sense, such as in homeopathic medicine) further increases consumers’ incentive to get informed and accordingly can have a positive effect on product quality. Finally, ex ante regulation can „save” the consumer from both misinformation and „disappointment” but can lead to higher price if the firm has market power, so its effect on consumer welfare is at least ambiguous. The second essay studies the effect of the exit of Uber from the Budapest market ont he use of MOL Bubi, Budapest’s bicycle sharing network. The essay comes to the perhaps surprising conclusion that the exit of Uber depressed BSS use among regular users (but, on the other hand, increased usage among ad hoc users). A possible conclusion is that users increasingly use bicycle sharing systems as part of a „multimodal” way of transportation. The third essay sketches a model of parental investments in general and specific human capital. Early investments can be important not only because they may directly contribute to adult productivity, but also because later skills are built on earlier skills. The basic model helps explain why students with „many talents” specialize later while average or relatively poor students specialize earlier. It also sheds light on „superstar markets” and expalins why, for instance, the average age at which someone becomes a chess grandmaster has decreased over the past few decades. The model also predicts that specialization becomes more delayed as formal learning increases in importance relative to learning-by-doing. Extensions of the model shed light ont he emergence and decline of caste systems as well as norms around the sexual division of labor. Caste systems may have developed partly due to a particularly great difficulty in finding out one’s place in the talent distribiution in different sectors. In such circumstances, a caste system, by decreasing uncertainty, can induce more early investment in specific, but relatively less investment in general human capital. The increasing importance of general knowledge and formal education, the decrease in information costs and the increase in market demand weakens caste systems. However, a strict caste system can be more stable than an „imperfect” one, making some caste systems hard to break. Gender norms emerge partly in order to facilitate early market and household specific investments in cases when search costs in the marriage market are very high. As search costs decrease, the sexual division of labor loses in importance and the role of general and formal education increases, we expect, in fact, observe a great weakening of „traditional” gender norms. The fourth essay models religious and other supernatural persuasion by parents as well as political leaders. The first part shows how fictional figures such as Santa Claus can help solve a parent’s commitment and monitoring problem in trying to influence children’s behavior. The second part shows how and when political leaders co-opt religious institutions in order to incite law-abiding behavior in the citizenry. The leader relies more on such religious persuasion when it is harder to enforce laws and when the population is larger. The fifth, final essay is concerned with the building of morals or „virtue capital” by parents in their children, and it consists of a number of small and simple models that could serve as the bases of further research. Among else, the essay demonstrates that even non-paternalistic parents have incentives to steer their children away from „self-destructive” behavior as such behavior lowers the return on human capital investments. The parent can thus „insure” her investments by influencing the child’s attitudes to drug use and other forms of potential self-destruction. Another model from the chapter shows that in a world with agency problems the incentive to invest in „honesty” increases in the elasticity of the residual demand for agents’ services. Therefore, we should observe more honesty in a more competitive economy. The presented essays are connected to different research projects. The second essay and the first part of the 4h essay have already been published, while the last essay is a work in progress: parts of it are in the process of being transformed to separate papers.