This award funds research on three distinct problems in microeconomic theory. The PI will build and analyze three different models. The first part of the project will consider the role of lobbying and vote buying in determining electoral outcomes. The goal is to develop results about the efficiency and distributional consequences of voting outcomes when vote trading is possible. The second project considers how prices are determined in a market where a buyer must approach sellers one-by-one for price quotes. If the sellers have private information about the cost of production, then the buyer knows that each quoted price gives some information about the likely quotes that she could get by approaching yet another seller. The goal here is to determine how the level of search costs -- the costs in time and effort that the buyer must incur to get a quote from an additional seller -- affect the price that the buyer finally accepts.
The third project is motivated by a phenomenon observed in some employer/employee relationships. On occasion, the compensation of employees is affected considerably by actual outside offers that the employee generates by searching for a new job. In other employement relations, such offers are not necessary in order to earn salary increases. The PI will construct a formal model that can predict when outside offers are used by employees.
The first part of this project will contribute the public debate on possible restrictions on lobbying. The second project will improve our understanding of a sequential search process that is commonly used by small businesses who seek to purchase one or more components from another "upstream" firm. The results will be useful for antitrust enforcers and others interested in determining the degree of competition in these markets. The third project may yield implications for the design of employment contracts in organizations that employee skilled workers.
