Essays in economic theory

by Kvasov, Dmitriy V.

iii Many important phenomena (electoral competition, R & D races, lobbying) are instances of multiple simultaneous contests with unconditional commitment of limited resources. Specifically, the following game is analyzed in the first chapter. Two players compete in a number of simultaneous contests. The players have limited resources (budgets) and must decide how to allocate these to the different contests. In each contest the player who allocates more resources than his adversary wins a corresponding prize. Resources devoted to a contest are not recoverable (sunk costs). Mixed-strategy equilibria are characterized for cases of: identical values and budgets; different values but identical budgets; identical values but different budgets. The second chapter shows how the time considerations, especially those concerning contract duration, affect incomplete contract theory. We consider a bilateral trade setting where contracting, investment, trade, and renegotiation take place in continuous time. Time is not only a dimension along which the relationship unfolds but also a continuous verifiable variable that can be included in contracts. It is shown that incentives for efficient investment can be provided either through a chain of constantly renegotiated fixed-term contracts; or through a renegotiation-proof `evergreen' contract--a contract of indefinite duration that includes an option of unilateral termination with advance notice. The third chapter analyses the strategic formation of (undirected) buyer-seller networks using a fully non-cooperative framework, employing subgame perfect equilibrium not a stability notion as a solution concept. No costs of forming links between players are assumed, instead the notion of specificity as a source of negative externality in a network is introduced. Equilibrium and efficient networks are characterized for the three models, and the relationship between these sets is analyzed.