| This dissertation consists of three essays studying various issues in applied microeconomic theory.;The first essay proposes a model of two-party elections in which voters' preferences over candidates is affected by their perception on candidates' sincerity. Unlike valence, voters' assessments of a candidate's sincerity depend on his platform choice for the current election because of his political baggage. In equilibrium, the following properties are observed. First, when candidates seek to maximize their winning-probability, higher baggage leads to more extreme platform choice from the median, but valence shows no influence. Second, the equilibrium outcome is more sensitive to the change in voters' policy preference when candidates seek to maximize their chance of winning than their expected share of votes. Finally, in a tight electoral race between share-maximizing candidates, the equilibrium outcomes that obtain under simultaneous and sequential platform choice coincide and are completely insensitive to a small change in the voter distribution. Our results provide an alternative explanation for the cause and extent of policy extremism and rigidity in political competitions.;The second essay considers optimal contracts when a principal obtains advice from experts. When advisors have conditionally uncorrelated signals about an unknown true state of nature, aggregating multiple signals can lead to a better outcome than just choosing the single best one. In this paper, we examine a principal's design of an optimal compensation scheme to screen the type of each expert, or the precision of his signal, for proper aggregation of multiple signals. Under a Gaussian specification of information, we show that there exists a compensation scheme which achieves the first best outcome: Each expert is induced to honestly report his posterior on the true state, to truthfully reveal his type, and is paid only his reservation utility. Further, the optimal contract is a linear function with respect to a convex function of the mean squared error. The optimal contract satisfies a single crossing property with respect to the fixed wage component of the compensation and the incentive component which depends on the prediction error. This result comes from the cheap talk feature of the professional advising, which implies that an agent's payoff solely depends on the transfer from a principal.;The third essay considers the optimal employment problem faced by a monopolistic employer when potential employees are heterogeneous in ability and the marginal contribution of an expert depends not only on his own ability, but also on the abilities of the remaining employees. If an increasing submodular production function of indivisible employees shows increasing difference in marginal production, or decreasing concavity, and the reservation wage schedule is a fraction of the production by single employee, the optimal employment portfolio can be described by a cutoff element: all employees with greater ability than the cutoff level are hired and the rest are not. Moreover, the efficiency in employment is achieved through myopic decisions. |
