Essays on Heterogenous Preferences, Persuasion, and Planner-doer Games

This dissertation consists of three essays that study heterogeneous preferences in economic activities and their implications for welfare. Chapter one axiomatizes the choice behavior that implies a finite distribution of underlying quasi-linear utilities (types). The choice alternatives are pairs of goods and their prices. Given the choice data over such choice alternatives, this model can uniquely construct the underlying types and their distribution and establish the existence of a quasi-linear tie-breaking rule. This identification gives a unique social welfare aggregator consistent with the Pareto efficiency criterion. Chapter two is on signaling games with an imperfectly informed victim and a perfectly informed defendant with respect to whether the defendant is actually liable to the victim. A two-agent game and a three-agent extension where the victim can hire a lawyer who is perfectly informed but pursues a selfish objective in his advice are compared. In particular, a lawyer affects a victim's information environment in a way that is similar to Bayesian persuasion (Kamenica and Gentzkow, 2011). Overall, this analysis captures some stylized empirical patterns of the legal system such as the litigious tendency due to different parameters, and identifies both the positive and negative welfare effects of lawyers' advice. Delegation is common in decision-making settings. Delegation usually comes with some costs since the planner needs to motivate doers to make appropriate choices. Such costs can result from hidden actions such as private commitments or potential future verifications and thus can be unobservable to outsiders. Chapter three axiomatizes the planner's ex-ante preferences over finite menus and derives the planner's hidden delegation costs from such preferences. A special case when the delegation cost is binary (0 or infinity) is studied, and an algorithm to check whether ex-post choices conform to the delegation model with binary costs is provided