Date of Award

Spring 5-15-2019

Author's School

Graduate School of Arts and Sciences

Author's Department

Economics

Degree Name

Doctor of Philosophy (PhD)

Degree Type

Dissertation

Abstract

This dissertation consists of three chapters on topics in microeconomic theory. In Chapter 1, I study reputation effects under uncertain monitoring. I examine a repeated game

between a long-run player and a series of short-run opponents. The long-run player

can either be a strategic type or a commitment type that plays the same action in

every period. The modeling innovation is that the short-run player is unsure about

the monitoring structure. The uncertainty about the monitoring structure introduces

new challenges to reputation building because there may not be a direct relationship

between the distribution of signals and the long-run player’s strategy. Thus the long-run

player may not have the ability to establish a reputation for commitment. I show

that, when the short-run players cannot statistically distinguish commitment action

from a bad action, the standard reputation results break down. I also provide sufficient

conditions under which reputation effects on long-run player’s payoffs can be extended

to the current framework. When the commitment payoff is the highest payoff he can

get, the conditions can be relaxed. In Chapter 2, I study a bounded rationality model of opinion formation in which there are two different types of agents: naive agents and sophisticated agents. All agents update their opinions by taking weighted averages of neighbors’ opinions. Naive agents truthfully report their opinions, but sophisticated agents can strategically report opinions to manipulate naive agents. I show that the limiting opinions are completely determined by sophisticated agents’ biases and the structure of the network and that, generically, there is no consensus. I analyze how disagreement is affected by the intensity of lying cost, diverging interests, and the structure of the social network. I also show that naive agents do not have any social influence and sophisticated agents’ social influence can be decomposed into two separate factors: direct influence and indirect influence. In Chapter 3, which is co-authored with Pinar Yildirim, we investigate the impact of informal lending on the types and

terms of contracts offered by formal banks, considering factors that facilitate informal

lending activity such as social ties among consumers. The density of the connections

among consumers represents the degree to which those with and without wealth mix,

indirectly capturing the degree of inequality in a society. We develop a model which

relates the density of social connections to the availability of informal lending activity.

We show that a low to moderate degree of informal activity in a market can help

poor entrepreneurs because it motivates the bank to compete by cutting down the

interest rate of unsecured loans offered to these consumers. In turn, the bank faces

an overinvestment problem when financial inclusion is higher. As informal borrowing

opportunities increase further, the bank’s benefit from increased access to credit diminishes.

It earns higher rents by increasing the rates on wealthy low-risk consumers

who can informally lend to their social contacts. As a consequence, the overinvestment

problem is replaced by an underinvestment problem, and creditworthy entrepreneurs

are deprived of loans from the bank. We argue that although the entrepreneurial

investment shrinks, only those projects with the best return are awarded financing,

implying that the average investment in the market is now more attractive.

Language

English (en)

Chair and Committee

Brian Rogers

Committee Members

Jonathan Weinstein, Marcus Berliant, SangMok Lee, Mariagiovanna Baccara,

Comments

Permanent URL: https://doi.org/10.7936/kxwx-p018

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