The Economics of Self-Selection

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Over the last ten years there have been very significant advances in both the theory of noncooperative games and in the application of the theory to explain economic phenomena. The primary goal of this proposal is to develop better theoretical insights into the role of institutions when individuals have different information. An important subclass of institutional arrangements deal with one.sided competition. In such "contests" agents compete with each other for some form of invisible reward. This may take the form of a race for some patentable process, bidding for a contract or spending by interest groups in the pursuit of a political payoff. The first part of the research is concerned with the development of a more basic model of this last activity. The objective is to enhance our understanding of the relationship between the value of the political prize (such as a franchise or tariff barrier) and the resources that agents are willing to spend in pursuit of this prize. The second part of the project involves extending the theory of auctions, in particular, further exploring the properties of the common sealed high bid and open ascending bid auctions. The final part of the research is to investigate the basic model of two.sided competition with private information. To reveal private information, individuals can undertake costly signalling activity. The goal of the project is to shed light on the equilibrium of choice signals. There is now a considerable body of research formally characterizing a "competitive" equilibrium in which differences in product quality are only learned because sellers undertake some activity which signals such differences. A difficult theoretical problem, however, remains to be resolved when it is that the buyers must move first.