Essays in Microeconomics

Abstract

This thesis contains five papers. Two belong to the field of industrial organization. Both are on innovation and the investment in it. The paper “Persistence of Monopoly and Research Specialization” takes a new look at monopoly persistence and explores which effects determine it. In “Entry and Incumbent Innovation”, we investigate how the threat of entry influences the innovation activity of an incumbent. Two papers belong to the field of contract theory. They are on principal-agent relationships with moral hazard. In “Ambiguity in a Principal-Agent Model”, we assume that the agent’s knowledge about the statistical properties of the performance measure is ambiguous and that the agent is averse to ambiguity. We investigate how ambiguity and ambiguity aversion change the use of information and the power of the incentives which are optimally set. In “The Optimality of Simple Contracts: Moral Hazard and Loss Aversion”, Fabian Herweg, Daniel M¨uller, and I explore how an agent’s loss aversion changes the complexity of the optimal contract. The last paper is on the economics of education and human capital formation. In “The Technology of Skill Formation and Hidden Information”, we consider a model of child development, where the formation of human capital occurs in multiple stages via investments. We explore how hidden information about how to treat a young child best changes the optimal investment plan.