Persistent Link:
http://hdl.handle.net/10150/318833
Title:
Essays on Market Intervention and Regulation
Author:
Rietzke, David Michael
Issue Date:
2014
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
This dissertation is a theoretical exploration of commonly used policy tools meant to improve market performance. The first chapter examines the use of prizes and grants as instruments for encouraging research and development. The second chapter investigates the welfare impact of price caps in oligopoly markets with endogenous entry. The third chapter studies the relationship between deposit insurance and bank risk taking, when a banker is motivated by reciprocity. The first chapter explores the use of grants and prizes as tools for encouraging research activity and innovation. Grants and prizes are commonly used by public and private research funders, and encourage R&D activity in different ways. Grants encourage innovation by subsidizing research inputs, while prizes reward research output. A common rationale for prizes is moral hazard; if a funder cannot observe all relevant research inputs then prizes create a strong incentive for R&D activity. In this chapter, it is shown that grants are a more efficient means of funding when a researcher's ability is unknown to the funder (adverse selection). When both adverse selection and moral hazard problems exist, a grant may emerge as an optimal funding mechanism, provided the moral hazard problem is relatively weak. In settings where the moral hazard problem is sufficiently strong, a grant emerges as part of an optimal funding mechanism, in conjunction with a prize. These results are useful for understanding different funding mechanisms used by both public and private entities. The second chapter, which is based on joint work with Stan Reynolds, examines the impact of price caps in oligopoly markets with endogenous entry. In the case of deterministic demand, reducing a price cap yields increased total output, consumer welfare, and total welfare. This result falls in line with classic results on price caps in monopoly markets, and with results for oligopoly markets with a fixed number of firms. These comparative static results for price caps need not hold when demand is stochastic and the number of firms is fixed, but recent results in the literature show that a welfare improving price cap does exist. We show that a welfare-improving cap need not exist in the case where demand is stochastic and entry is endogenous. In addition, we provide restrictions on the demand function such that a welfare-improving price cap exists under endogenous entry and stochastic demand. The third chapter, which is based on a joint project with Martin Dufwenberg, investigates the relationship between deposit insurance, risk taking, and insolvency. Empirical evidence suggests that the introduction of deposit insurance increases risk taking by banks and results in a greater chance of insolvency. The common rationale for this connection is that deposit insurance decreases the incentive for customers to monitor their banks, and invites excessive risk taking. In this chapter, it is argued that this classic explanation is somewhat puzzling. If customers can monitor their bank's behavior, certainly the insurance provider (FDIC) has this same ability. If this is the case, appropriate mechanisms could limit the moral hazard problem. We put forth an alternative explanation, and demonstrate that deposit insurance invites excessive risk taking when a banker is motivated by reciprocity.
Type:
text; Electronic Dissertation
Keywords:
Grants; Industrial Organization; Oligopoly; Price Caps; Reciprocity; Economics; Deposit Insurance
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Graduate College; Economics
Degree Grantor:
University of Arizona
Advisor:
Reynolds, Stanley S.

Full metadata record

DC FieldValue Language
dc.language.isoen_USen
dc.titleEssays on Market Intervention and Regulationen_US
dc.creatorRietzke, David Michaelen_US
dc.contributor.authorRietzke, David Michaelen_US
dc.date.issued2014-
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractThis dissertation is a theoretical exploration of commonly used policy tools meant to improve market performance. The first chapter examines the use of prizes and grants as instruments for encouraging research and development. The second chapter investigates the welfare impact of price caps in oligopoly markets with endogenous entry. The third chapter studies the relationship between deposit insurance and bank risk taking, when a banker is motivated by reciprocity. The first chapter explores the use of grants and prizes as tools for encouraging research activity and innovation. Grants and prizes are commonly used by public and private research funders, and encourage R&D activity in different ways. Grants encourage innovation by subsidizing research inputs, while prizes reward research output. A common rationale for prizes is moral hazard; if a funder cannot observe all relevant research inputs then prizes create a strong incentive for R&D activity. In this chapter, it is shown that grants are a more efficient means of funding when a researcher's ability is unknown to the funder (adverse selection). When both adverse selection and moral hazard problems exist, a grant may emerge as an optimal funding mechanism, provided the moral hazard problem is relatively weak. In settings where the moral hazard problem is sufficiently strong, a grant emerges as part of an optimal funding mechanism, in conjunction with a prize. These results are useful for understanding different funding mechanisms used by both public and private entities. The second chapter, which is based on joint work with Stan Reynolds, examines the impact of price caps in oligopoly markets with endogenous entry. In the case of deterministic demand, reducing a price cap yields increased total output, consumer welfare, and total welfare. This result falls in line with classic results on price caps in monopoly markets, and with results for oligopoly markets with a fixed number of firms. These comparative static results for price caps need not hold when demand is stochastic and the number of firms is fixed, but recent results in the literature show that a welfare improving price cap does exist. We show that a welfare-improving cap need not exist in the case where demand is stochastic and entry is endogenous. In addition, we provide restrictions on the demand function such that a welfare-improving price cap exists under endogenous entry and stochastic demand. The third chapter, which is based on a joint project with Martin Dufwenberg, investigates the relationship between deposit insurance, risk taking, and insolvency. Empirical evidence suggests that the introduction of deposit insurance increases risk taking by banks and results in a greater chance of insolvency. The common rationale for this connection is that deposit insurance decreases the incentive for customers to monitor their banks, and invites excessive risk taking. In this chapter, it is argued that this classic explanation is somewhat puzzling. If customers can monitor their bank's behavior, certainly the insurance provider (FDIC) has this same ability. If this is the case, appropriate mechanisms could limit the moral hazard problem. We put forth an alternative explanation, and demonstrate that deposit insurance invites excessive risk taking when a banker is motivated by reciprocity.en_US
dc.typetexten
dc.typeElectronic Dissertationen
dc.subjectGrantsen_US
dc.subjectIndustrial Organizationen_US
dc.subjectOligopolyen_US
dc.subjectPrice Capsen_US
dc.subjectReciprocityen_US
dc.subjectEconomicsen_US
dc.subjectDeposit Insuranceen_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.disciplineEconomicsen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorReynolds, Stanley S.en_US
dc.contributor.committeememberReynolds, Stanley S.en_US
dc.contributor.committeememberDufwenberg, Martinen_US
dc.contributor.committeememberBlume, Andreasen_US
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