| This dissertation uses techniques from game theory, to examine three different sets of institutions. In chapter 1, I investigate when and how principals (boards of directors) can use external experts to monitor agents (management) when agents control information necessary for monitoring. I demonstrate how using experts to certify management recommendations affects the disclosure incentives of management. Because certification serves as a signaling mechanism, when managers have the incentive to truthfully reveal all that they know, certification mandates are unnecessary since managers will choose to seek out second opinions. When information disclosures cannot be easily verified, certification mandates can be counterproductive, elevating the status of costly second opinions that always agree with management recommendations.;In chapter 2, I analyze how private schools decide which students to admit from their applicant pool using mechanism design theory. The problem for an individual private school of who to admit and how much to charge in tuition, is complicated by the existence of peer-effects. This feature, coupled with the fact that students can always attend public school for free, places constraints on the types of classes the private school can admit. Allocation rules which only admit all high ability students and no others, or all high wealth students and no others are not feasible. I utilize a simple example to show how in a revenue-maximizing allocation, the private school always under-admits the highest ability students relative to the allocation rule that maximizes social welfare.;Chapter 3 examines the incentives parties in litigation face to settle their disputes prior to trial. We use economic theory to show that in NSW plaintiffs and defendants benefit from making offers under the court rules relative to common law offers. In addition we set out a framework which may assist practitioners in their formation of, timing of, and acceptance of offers of compromise. |
