Essays in economic theory

Camboni, Matteo

doi:https://doi.org/10.21985/n2-9tnb-p125

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Essays in economic theory

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The first chapter of the dissertation analyzes a moral hazard problem where a firm incentivizes a team of complementary workers in the presence of trust concerns. As we show, when concerned about team members not trusting each other, the firm typically sacrifices statistically-relevant information, compensating some workers based solely on their individual performance rather than also on team performance. Finally, we show that, in the presence of trust concerns, the firm benefits from monitoring some workers more closely than others, and the workers, as a whole, benefit from hindering such monitoring. However, we show that, absent a coordinating institution (e.g., a union), the competition for better contracts incentivizes workers to be more transparent, triggering an unraveling result that only benefits the firm: a self-promotion trap. The second chapter of the thesis shows how favoritism in government policy naturally arises and shapes conflicts in societies where tax extraction is only constrained by the violence potential of multiple social groups. In equilibrium, the government undermines the subjects' ability to coordinate against taxation by creating a ranking that grants higher status, thus lower taxes, to stronger groups. Such divide-and-conquer strategy (favoritism), which emerges in the shadow of violence, motivates a novel class of conflicts where resource appropriation/destruction is aimed at climbing the government's ranking. The third chapter of the thesis studies the incentives for an intermediary (a school) to provide a finer or coarser monitoring structure. We show that a monopolistic school induces the pooling equilibrium as the unique equilibrium of the game. On the other hand, when multiple schools compete to attract students, they typically select the monitoring structure preferred by the high types. From the agents' perspective, such equilibrium Pareto-dominates every separating equilibrium of the classical Spence model.

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