Essays in Applied Game Theory: Information and Incentives in Politics and Markets

This dissertation examines how information and informational frictions shape incentives, strategic behavior, and welfare in markets and politics. It consists of three self-contained chapters that develop game-theoretic models of price competition under imperfect information, optimal public information design in electoral accountability, and the role of emotions in collective action against policymakers.

 

Chapter 1 studies oligopolistic price competition when sellers are uncertain about their rivals’ costs and consumers differ in their access to price information. Extending the Burdett and Judd (1983) framework to allow for cost heterogeneity, the chapter characterizes a unique pure-strategy equilibrium in which prices increase with costs and shows that the classical mixed-strategy equilibrium arises as a limiting case. It further shows that consumer information affects pricing asymmetrically: when captive consumers become informed, all sellers lower prices, whereas better-informed non-captive consumers induce low-cost sellers to reduce prices and high-cost sellers to raise them. The chapter also analyzes endogenous costly search and price discrimination, showing that entry is pro-competitive only when search frictions are sufficiently low and that third-degree price discrimination is payoff-equivalent to uniform pricing.

 

Chapter 2 analyzes optimal information revelation in a model of political accountability. An incumbent privately observes a policy-relevant shock and chooses whether to exert costly effort, while a representative voter observes policy outcomes and a public signal before deciding whether to reelect the incumbent. The voter faces a tradeoff between discipline, which strengthens incentives for effort, and selection, which improves the removal of incompetent incumbents. Under pre-effort revelation, the optimal disclosure policy is polarized between full transparency and complete opacity. Under post-effort revelation, by contrast, partial disclosure becomes strictly valuable. In particular, conditional censorship can improve electoral screening without weakening incentives, implying that post-effort revelation weakly dominates pre-effort revelation in terms of voter welfare.

 

Chapter 3 develops a theory of protest as a psychological game in which emotions, policy choices, and collective action are jointly determined in equilibrium. A policymaker chooses effort in providing a public good, and citizens observe a noisy outcome and protest when it falls short of an endogenous reference level shaped by expectations and emotional responses such as anger. The model yields multiple equilibrium regimes: policymakers may ignore protest, randomize between accommodating and ignoring demands, or make deterministic concessions, depending on the size and disruptiveness of the protesting group. A central result is that the effect of stronger emotions on effort and protest is nonmonotonic, so that more intense emotional reactions can sometimes be counterproductive.