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Market imperfections and market-based policy instruments

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dc.contributor.advisor Glenn Ellison. en_US Eun, Dong Jae en_US
dc.contributor.other Massachusetts Institute of Technology. Department of Economics. en_US 2017-05-11T20:00:41Z 2017-05-11T20:00:41Z 2017 en_US 2017 en_US
dc.description Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2017. en_US
dc.description Cataloged from PDF version of thesis. en_US
dc.description Includes bibliographical references (pages 149-152). en_US
dc.description.abstract The first chapter discusses procurement auction mechanisms under the political constraint that the contractor is in effect protected from ex-post loss. Many construction procurers who use first price auctions eliminate abnormally low bids in order to reduce the probability of ex-post bid adjustment. The Korean government systematizes such a bid screening process by setting a stochastic cutoff under which bids are disregarded. This chapter builds an auction model with ex-post bid adjustment and establishes that introducing a stochastic cutoff indeed decreases the probability of ex-post bid adjustment when the contractor is protected from ex-post loss. Data on Korean public procurement auctions for paving work is used to structurally estimate model parameters and assess welfare implications. Counterfactual analyses indicate that, if the Korean government were to switch to the usual first price auction, (1) the probability of bid adjustments triggered by cost overruns would significantly increase, from 14 percent to 88 percent; (2) the resulting social cost increase due to bid adjustment processes would amount to at least 360 percent of cost savings from the first price auction's ability to find an efficient firm; and therefore (3) the total social cost increase would be 7 percent. Finally, a mechanism design approach is employed to characterize an optimal mechanism under a no loss constraint and to provide a measure of efficiency loss associated with the two forms of auctions. The second chapter quantifies consumers' cognitive costs in the context of fast-food purchases. Most fast-food burger chains set different effective add-on (fries and a soda) prices in "meals" across burger items. This means that sophisticated consumers, who buy, for example, a sandwich-only and a meal, may try rearranging the add-ons across burgers in hopes of lowering their payment. This feature provides a unique opportunity to study consumers' behavior, when a firm engages in price obfuscation-charging multiple prices for an identical product and requiring consumers to incur cognitive costs before finding lowest price quotes. Using sales data of a Korean local fast-food chain, this chapter first presents descriptive evidence that consumers do respond to an opportunity to lower expenses by rearranging add-on items. Then it develops and estimates an optimal model of calculation and rearrangement where a consumer incurs a unit of cognitive cost for every effective add-on price of a burger she calculates. The third chapter documents how a persistent adverse selection problem can be eventually mitigated by market force. In 2010, a prominent conglomerate entered as a market-maker in the Korean online used car market, which had long been considered a "market for lemons". In order to alleviate the asymmetric information problem, the firm introduced a costly quality signaling mechanism: in its online platform, the company certifies at a fee the car's inspection report mandated to be provided to consumers but deemed often unreliable. This chapter examines the effect of certification on the sale price and the days on the market. It also investigates which vehicles' inspection reports are more likely to be certified. en_US
dc.description.statementofresponsibility by Dong Jae Eun. en_US
dc.format.extent 152 pages en_US
dc.language.iso eng en_US
dc.publisher Massachusetts Institute of Technology en_US
dc.rights MIT theses are protected by copyright. They may be viewed, downloaded, or printed from this source but further reproduction or distribution in any format is prohibited without written permission. en_US
dc.rights.uri en_US
dc.subject Economics. en_US
dc.title Market imperfections and market-based policy instruments en_US
dc.type Thesis en_US Ph. D. en_US
dc.contributor.department Massachusetts Institute of Technology. Department of Economics. en_US
dc.identifier.oclc 986529540 en_US

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