Date of Award

8-2012

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Economics

Major Professor

Scott M. Gilpatric

Committee Members

Christian Vossler, Rudy Santore, Terry Leap

Abstract

This dissertation consists of three chapters that examine how regulation by a central authority motivates changes in behavior.

Chapter 1 identifies the role of a tolerance policy as a manager’s regulatory mechanism which can deter worker misconduct in rank-order tournaments. When contestants’ actions cannot be perfectly monitored or doing so is prohibitively costly, misconduct takes place. This chapter develops a theoretical model in which contestants compete for a prize in a symmetric tournament and in which the organizer tolerates some level of misconduct. In addition to showing that zero tolerance does not minimize equilibrium misconduct, it also shows there exists a range of tolerance levels where a symmetric mixed strategy equilibrium exists in which players engage in malfeasance (i.e. misconduct above the tolerated level) with some probability.

Chapters 2 and 3 study how a patentholder’s decision to license a clean technology to firms differs under alternative regulatory instruments (either an emissions tax or tradable permits). They are the first theoretical analyses to explicitly account for oligopolistic behavior in the product market and to endogenize the patentholder’s optimal licensing decision under environmental policy.

Chapter 2 assumes that the number of firms in the oligopoly is fixed. In contrast to what is generally found in the environmental literature, the results show that, for at least some range of innovation, a permit policy motivates the patentholder to license to more firms than he would under an equivalent emissions tax. This is because, for this range of innovation, the optimal licensing policy of the innovator is to auction a sufficiently large number of licenses so that the market becomes concentrated. For an equivalent tax and permit policy, it is more ‘difficult’ to concentrate the market under the latter since non-licensees can free-ride off of the reduction in permit price that occurs when more licenses are auctioned.

Chapter 3 is a natural extension of Chapter 2 by allowing free entry of non-licensees. The results are analogous to those in the previous chapter although the intuition differs. In Chapter 3, the innovator auctions enough licenses in order to deter entry by a potentially limitless number of non-licensees.

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