Economic activity is mostly performed by groups of agents that form organizations and collectives. In this dissertation I explore the effects of two frictions, namely conflicting preferences and contracting with externalities, on the characteristics of agents that jointly constitute a given organization or collective. First, in many professional environments workers incorrectly assess their actual skills and knowledge, which potentially compromises the quality of their work. Why might a firm be better off hiring an individual known to be over- or under-confident? In the first chapter, I argue that such biases can alleviate agency frictions. I present a model in which an agent uses his private information to make a choice on behalf of a principal. Players differ in their preferred action in a given state of the world. In this setting, I consider what I call the belief design problem: how would the principal like the agent to interpret his private information? I provide conditions under which the solution to this problem can be interpreted as the principal preferring a rational, an under-confident, or an over-confident agent. Rationality is strictly preferred by the principal if and only if the expected difference in the players' preferred actions does not vary with the signal realization. Second, in collective litigation, outcomes of previous cases are used by other potential plaintiffs when choosing their own litigation strategies. In the second chapter, my co-author and I study how collective litigation forms, and we explore actions that the defendant can take to interfere in this process. We propose a model of litigation in which a defendant faces the stochastic arrival of plaintiffs over time and where the defendant is privately informed about the extent of the harm she has caused. While settling with each individual plaintiff is a very effective tool that allows the defendant to avoid litigation, one bad apple may spoil the barrel: when some negotiations are doomed to fail, the process "cascades back," making it possible that earlier (and otherwise frictionless) negotiations also fail. When secret settlements are feasible, equilibrium payoffs look no different than when only secret settlements are allowed. Our results highlight potential social benefits from restricting secrecy.

Creator

• ESPITIA DE LA HOZ, Andres

DOI

• https://doi.org/10.21985/n2-62fj-ah85

Subject

• Economics

Language

• en

Alternate Identifier

• http://dissertations.umi.com/northwestern:16055
• etdadmin_upload_901777

Date created

• 2022-01-01

Resource type

• Dissertation

Rights statement

• In Copyright