Essays on Behavioral Public Economics and Microeconomic Theory

This dissertation consists of the three independent chapters in the areas of Public Economics and Microeconomic Theory. The first two chapters use experimental and computational techniques to address two important behavioral issues in Public Economics. In particular, the first chapter (with Lise Vesterlund) examines if concerns for status may help explain why fundraisers commonly announce past contributions to future donors. To answer this question we incorporate status concerns into the standard charitable giving model, and subsequently test the predicted comparative statics in the laboratory. Consistent with the economic prediction we find that low-status followers are likely to mimic contributions by high-status leaders and that this encourages high-status leaders to contribute. Contributions are therefore larger when individuals of high status contribute before rather than after those of low status. The second chapter (with Athanasios C. Thanopoulos) uses computational techniques to assess welfare implications of an unfunded social security system when individuals have self-control preferences. Our computation model demonstrates that the welfare costs of an unfunded social security system are substantially reduced when agents have self-control preferences. However, the positive effect of reducing self-control costs is not large enough to surpass its negative effect on capital accumulation. Finally, the third chapter (with Hadi Yektas) of the dissertation examines an important and open mechanism design question. It characterizes the necessary conditions of optimal auction for multiple objects when agents are risk-averse. We show that the optimal auction is weakly efficient; in the sense that each object is sold to a buyer who has high valuation for it, if such a buyer exists. The seller perfectly insures all buyers against the risk of losing the object(s) for which they have high valuation. While the buyers who have high valuation for both objects are compensated if they do not win either object; the buyers who have low valuation for both objects incur a positive payment in the same event. The objects are bundled to the same buyer if all buyers have low valuation for both objects, thus, independent auctions are not optimal