Essays on Dynamic Incentives

This thesis consists of three essays in theoretical microeconomics. Broadly speaking, the unifying theme in the essays are dynamic incentives — how the actions of economic agents today depend on future actions. The first essay studies monopoly pricing in a model of social learning. A monopolist is selling a product of uncertain quality whose value to the consumers is revealed over time through buyers' experiences. How does the monopolist want to price the product? What are her incentives to produce information, i.e. learning about product quality, in such a market? The essay is part of a large literature addressing the Coase conjecture. We construct Markov perfect equilibria of the game and solve the commitment solution to the monopolist's problem. We show that unlike in the complete information models the latter can provide more welfare, because commitment power can enhance the monopolist's incentives to produce information. The second essay analyzes a firm, the principal, outsourcing a project to a subcontractor, the agent. The principal does not observe the agent's actions and the agent is protected by limited liability so there is moral hazard. What is the optimal contract for the principal in this setting? We show that the optimal contract takes the form of deadlines, in which the agent is punished for not delivering the project before the deadline. The essay then analyzes the role the agent's impatience plays for the optimal contract: effort moral hazard goes away as the agent becomes more impatient but quality moral hazard can become worse. The third essay studies countries' information acquisition in a common pool game with uncertain damages from emissions. Our motivating example is climate change, which generates a lot of research but there is still considerable uncertainty about its effects. How efficient is information acquisition by individual countries? We show that both the inefficiency of the common pool stage and the correlation between countries' damages are key determinants for information acquisition — when correlation is low noncooperative countries tend to overinvest into information compared to the cooperative solution and when it is high they tend to underinvest.