Three essays in microeconomic theory

Abstract

Chapter 1: Intrafamily Bargaining and Love Popular culture and common wisdom testify that the way partners in a relationship feel for one another very much depends on how they treat each other. This paper posits the hypothesis that altruism or love in a relationship is endogenous to the actions of the partners and studies how this influences allocations and efficiency in a bargaining model of household decision-making. The main results are that agents treat their partner in a kinder way than without endogenously evolving love, this leads to more equitable allocations in household decision making and greater intertemporal efficiency. There are two mechanisms at work: agents treat their partner nicely to avoid retribution by a less loving partner in the future; and they treat the partner nicely so that the kind reciprocal behavior raises their own love towards the partner, which lets them enjoy higher utility. As to love, two interpretations emerge: love is a commitment device by which couples can implement Pareto superior allocations; and love is an investment good in the sense that costly nice behavior towards the partner today may ensure higher levels of trust and efficiency in the future. Chapter 2: Perception of Technology and Technological Progress under Extractive Institutions This paper explores the impact of different perceptions of the nature of technology - whether it may grow in an arithmetic or geometric fashion - on the choices of an elite that lives on extracting resources from the productive populace. We show that slow potential growth destroys the credibility of inclusive institutions that the elite may consider in order to foster growth whereas these can and will be implemented if populace and elite believe in fast growth. Belief in the potential of technological growth leads to growth-friendly policies under both extractive and inclusive institutions and, as history progresses, the true nature of technology reveals itself and this belief spreads. Chapter 3: A critical literature review of the Property Rights Theory of the Firm and the communication of Unprotected Information Assets This paper reviews the literature centred on the question of what kind of settings facilitate the transmission of unverifiable pieces of information that re- side with an agent whose incentives are not well aligned with an agent for whom this piece of information is useful. The question is framed within the Property Rights Theory of the Firm and its answers make extensive use of the modelling device of Cheap Talk. The main findings are that communication leads to costly distortions and the efforts to decrease bias and information loss may trigger major revisions to the structure of incentive systems and the allocation of decision-rights. The paper argues that the literature has so far failed to properly examine the question of property rights of information and is therefore focused on niche applications.