A central concern for modern macroeconomics is incorporating and understanding worker heterogeneity. The following two essays explore labor market dynamics along the dimensions of worker heterogeneity, search frictions, and policy. In each essay, I construct a macroeconomic model of the labor market, calibrate the model using micro data, and use the model to interpret labor market outcomes and evaluate policy. In the first chapter, I build an equilibrium lifecycle model of wages in which heterogeneous workers endogenously invest in human capital accumulation and on-the-job search effort while firms post jobs. I discipline the model using microdata from the Survey of Income and Program Participation. The calibrated model shows that on-the-job search drives lifecycle wage growth while heterogeneous human capital accumulation drives lifecycle wage dispersion. Then, I use the model as a laboratory to study the effects of tax and transfer progressivity. An increase in progressivity decreases wages, primarily due to reduced on-the-job search effort. Interactions between human capital, search, and job posting amplify the decrease in wages. Surprisingly, an increase in progressivity has little effect on wage dispersion because the effects from the human capital and search channels offset each other. The second chapter deals with the persistence of the unemployment rate over the business cycle. Standard search models contain little internal propagation and predict that, after shocks, the unemployment rate quickly converges to its steady state level. I show that duration dependence in unemployment (the fact that unemployed workers with longer unemployment spells are less likely to find jobs) helps explain the persistence of the unemployment rate. I embed duration dependence in an otherwise standard search model and show that it significantly increases the unemployment rate persistence, reconciling the model to the data. Intuitively, after recessions, the composition of the unemployment pool shifts to the long-term unemployed. Because of duration dependence, the long-term unemployed have lower job finding rates, and the shift in composition decreases the aggregate job finding rate, slowing recovery. The magnitude of the effect depends on the extent to which duration dependence is causal rather than a consequence of worker heterogeneity.

These essays explore a variety of questions in information economics. Chapter 1 studies the optimal price and information disclosure policy for a seller introducing a new product, when buyers can search for an outside option at a cost. The buyer knows her outside option distribution, but the seller knows only its mean and an upper bound on its support, and evaluates any selling strategy by its guaranteed profit. I find that full disclosure is optimal only when the search cost is high, and different kinds of partial disclosure policies are optimal for lower search costs. Perhaps surprisingly, when the search cost decreases, the seller may increase the price, and provide less precise information. These results shed light on the large variations in information disclosure policies among new products, and suggest that technological advancements that reduce search costs may increase prices and make information provision noisier. Chapter 2 studies a class of verifiable disclosure games where the sender's payoff is state independent and the receiver's optimal action only depends on the expected state. I identify conditions for an information design outcome to be an equilibrium outcome of the verifiable disclosure game, and give simple sufficient conditions under which the sender does not benefit from commitment power. These results help me to characterize the sender's preferred equilibria and her equilibrium payoff set in a class of verifiable disclosure games. I apply these insights to study influencing voters and selling with quality disclosure. Chapter 3 studies procurement settings where the buyer's valuation of the good supplied depends directly on its quality, and the quality is both unverifiable and unobservable to the buyer. For a broad class of procurement problems, I identify the procurement mechanisms that maximize the buyer's expected payoff and the expected social surplus, respectively. In both cases, the optimal mechanism can be implemented by a dynamic combination of the two commonly used procurement methods: auction and negotiation. Procurement mechanisms of this kind are used in the Italian public procurement system.

I study split-pie bargaining problems between two agents. In chapter two, the types of both agents determine the value of outside options -- I refer to these as interdependent outside options. Since a direct mechanism stipulates outcomes as functions of agents' types, a player can update beliefs about another player’s type upon receiving a recommended outcome. I term this phenomenon as information leakage. I discuss binding arbitration, where players must stay with a recommended outcome, and non-binding arbitration, where players are not obliged to stay with an allocation. The total pie is reduced if the outcome is an outside option. With respect to efficiency, I derive a necessary and sufficient condition for first best mechanisms. These are mechanisms that assign zero probability to outside options for every report received. The condition describes balanced forces in conflict (outside options) and is the same in the cases of binding and non-binding arbitration. I also show a strong link between conflict and information: when conflict exists, information leakage occurs. Hence, non-binding arbitration may seem more restrictive than binding arbitration. To analyze why this is the case, I solve for second best mechanisms with binding arbitration and find a condition under which they can be implemented under non-binding arbitration. Thus, I show that non-binding arbitration can be as effective as binding arbitration in terms of efficiency. I also examine whether the equivalence between binding and non-binding arbitration can cease to hold, and provide analysis of why this happens. In chapter three, the bargaining problem entails no uncertainty but rather envy. Players can feel envy about the allocation of the other player. The Nash Bargaining solution is obtained in this context and some comparative statics are shown. The introduction of envy makes the more envious party a tougher negotiator.

In this paper, I study many-to-one matching markets in a dynamic framework with the

following features: Matching is irreversible, participants exogenously join the market

over time, each agent is restricted by a quota, and agents are perfectly patient. A

form of strategic behavior in such markets emerges: The side with many slots can

manipulate the subsequent matching market in their favor via earlier matchings. In

such a setting, a natural question arises: Is it possible to analyze a dynamic many-to-one

matching market as if it were either a static many-to-one or a dynamic one-to-one

market? First, I provide sufficient conditions under which the answer is yes. Second,

I show that if these conditions are not met, then the early matchings are "inferior"

to the subsequent matchings. Lastly, I extend the model to allow agents on one side

to endogenously decide when to join the market. Using this extension, I provide

a rationale for the small amount of unraveling observed in the United States (US)

medical residency matching market compared to the US college-admissions system.

Micro Finance Institutions (MFIs) are designed to improve the welfare of the poor.

Group lending with joint liability is the standard contract used by these institutions.

Such a contract performs two roles: it affects the composition of the groups that form,

and determines the properties of risk-sharing among their members. Even though the

literature suggests that groups consist of members with similar characteristics, there

is evidence also of groups with heterogeneous agents. The underlying reason is that

the literature lacked the risk-sharing behavior of the agents within a group. This

paper develops a model of group lending where agents form groups, obtain capital

from the MFI, and share risks among themselves. First, I show that joint liability

introduces inefficiency for risk-averse agents. Moreover, the composition of the groups

is not always homogeneous once risk-sharing is on the table.

In the first chapter, I study the two-sided, dynamic matching problem that occurs in the United States (US) foster care system. In this market, foster parents and foster children can form reversible foster matches, which may disrupt, continue in a reversible state, or transition into permanency via adoption. I first present an empirical analysis that yields four new stylized facts related to match transitions of children in foster care and their exit through adoption. Thereafter, I develop a two-sided dynamic matching model with five key features: (a) children are heterogeneous (with and without a disability), (b) children must be foster matched before being adopted, (c) children search for parents while foster matched to another parent, (d) parents receive a smaller per-period payoff when adopting than fostering (capturing the presence of a financial penalty on adoption), and (e) matches differ in their quality. I use the model to derive conditions for the stylized facts to arise in equilibrium and carry out predictions regarding match quality. The main insight is that the intrinsic disadvantage (being less preferred by foster parents) faced by children with a disability exacerbates due to the penalty. Moreover, I show that foster parents in high-quality matches (relative to foster parents in low-quality matches) might have fewer incentives to adopt.

In the second chapter, I study the Minnesota's 2015 Northstar Care Program which eliminated the adoption penalty (i.e., the decrease in fostering-based financial transfers associated with adoption) for children aged six and older, while maintaining it for children under age six. Using a differences-in-differences estimation strategy that controls for a rich set of covariates, I find that parents were responsive to the change in direct financial payments; the annual adoption rate of older foster children (aged six to eleven) increased by approximately 8 percentage points (24% at the mean) as a result of the program. I additionally find evidence of strategic adoption behavior as the adoption rate of younger children temporarily increased by 9 percentage points (23% at the mean) while the adoption rate of the oldest children (aged fifteen) temporarily decreased by 9 percentage points (65% at the mean) in the year prior to the program's implementation.

I study the design of two different institutions to evaluate the welfare implications

of counterfactual policies. In particular, I analyze (i) the problem of assigning

students to colleges (majors) in a centralized admission system; and (ii) an auction

where the seller can use securities to determine winner’s payment, and bidders

suffer negative externalities. In the former, I provide a novel methodology to

evaluate counterfactual policies when the admission mechanism is manipulable.

In the latter, I determine which instrument yields the highest expected revenue

from the class of instruments that combines cash and equity payments.

This paper discusses the matching between CEOs of different talent and firms of different size, by considering boards' costly monitoring of CEOs who have private information about firm output. By incorporating a costly state verification model into a matching model, we have a number of novel findings. First, positive assortative matching (PAM) breaks down as larger firms match with less talented CEOs when monitoring is sufficiently costly despite of complementarity in firms' production technology. More importantly, PAM can be the equilibrium sorting pattern for large firms and high talent CEOs even it fails for small firms and low talent CEOs, which implies that empirical applications relying on PAM are more robust by using samples of large firms. Second, under positive assortative matching, CEO compensation can be decomposed into frictionless competitive market pay and information rent. More talented CEOs extract more rent, which makes their wage even higher. Third, firm-level corporate governance depends on aggregate market characteristics such as the scarcity and allocation of CEO talent. Weak corporate governance can be optimal when CEO talent is sufficiently scarce. My analysis yields a number of empirical predictions on equilibrium sorting pattern, CEO compensation, and corporate governance.

This dissertation focuses on democracies governed by a Parliament. In such democracies, the executive branch consists of a subset of parties in the Parliament, called the Government. A key feature is that the Government is only indirectly determined by the voters' electoral decisions. This dissertation address how parliamentary characteristics and institutions influence the composition of the Government and government outcomes. The composition of the Government reflects the size and ideological make-up of the Government. Government outcomes reflect the length the Government survives and the policy consequences of the Government. The literature focuses on the former criterion. The view is that, in parliamentary democracies, longer Government duration should be associated with stability and better policies. The latter is important from the perspective of directly evaluating whether Governments make good or bad decisions from the perspective of voters. The first chapter of this dissertation develop a model of the government formation process, where parties care about and bargain over both policy and office benefits. The model generate predictions that matches important features of the data. The second chapter uses data from western European parliamentary democracies to estimate the parameters of the model in chapter one. The estimation results suggest that coalitions care about both ideology and office benefits, but more about office benefits. The third chapter studies which (existing) institutional environments lead to `good' government outcomes. The results have a number of important implications for constitutional design.

One theoretical research topic in organizational economics is the information issues raised in different organizations. This has been extensively studied in last three decades. One common feature of these research is focusing on the asymmetric information among different agents within one organization. However, in reality, we usually face the following situation. A group of people within an organization are completely transparent to each other; however, their characters are not known by other organization members who are outside this group. In my dissertation, I try to study how this information sharing would affect the outcome of different organizations. I focus on two organizations: corporate board and political parties. I find that this information sharing may be detrimental for (some of) the members who shared information. This conclusion stands in contrast to the conventional wisdom in both corporate finance and political party literature.

This dissertation presents three essays in economics. Firstly, I study the problem of allocating an indivisible good between two agents under incomplete information. I provide a characterization of mechanisms that maximize the sum of the expected utilities of the agents among all feasible strategy-proof mechanisms: Any optimal mechanism must be a convex combination of two fixed price mechanisms and two option mechanisms. Secondly, I study the problem of allocating a non-excludable public good between two agents under incomplete information. An equal-cost sharing mechanism which maximizes the sum of the expected utilities of the agents among all feasible strategy-proof mechanisms is proved to be optimal. Under the equal-cost sharing mechanism, when the built cost is low, the public good is provided whenever one of the agents is willing to fund it at half cost; when the cost is high, the public good is provided only if both agents are willing to fund it. Thirdly, I analyze the problem of matching two heterogeneous populations. If the payoff from a match exhibits complementarities, it is well known that absent any friction positive assortative matching is optimal. Coarse matching refers to a situation in which the populations into a finite number of classes, then randomly matched within these classes. The focus of this essay is the performance of coarse matching schemes with a finite number of classes. The main results of this essay are the following ones. First, assuming a multiplicative match payoff function, I derive a lower bound on the performance of n-class coarse matching under mild conditions on the distributions of agents' characteristics. Second, I prove that this result generalizes to a large class of match payoff functions. Third, I show that these results are applicable to a broad class of applications, including a monopoly pricing problem with incomplete information, as well as to a cost-sharing problem with incomplete information. In these problems, standard models predict that optimal contracts sort types completely. The third result implies that a monopolist can capture a large fraction of the second-best profits by offering pooling contracts with a small number of qualities.