Three essays in microeconomics

This dissertation contains three essays that can be read independently. The first chapter defines a good called social distinction and analyzes monopoly pricing in an environment in which consumers desire to obtain social distinction. The model considered is illustrated by an application from real estate economics in which the desire for social distinction is interpreted as a preference for relative quality (e.g. size) of houses. The question discussed is: does the introduction of a desire for social distinction alter standard conclusions about consumer behavior? Our answer in the model considered will be that it does. For example, a good of high material quality may be cheaper than a good of low material quality and price discrimination occurs for homogeneous consumer groups.; The second chapter provides a suggestive discussion concerning tests of theories of choice under uncertainty. Such tests frequently involve at least two joint hypotheses; one being the description of the objects of choice (e.g. lotteries as probability distributions) and the other the qualitative preference assumptions (e.g. 'transitivity'). When faced with inconsistent evidence, the dominant descriptive approach thus far has been to weaken the normatively motivated preference assumptions while preserving the same objects of choice. This chapter is concerned with illustrating what generally will come out of the opposite approach; preserving the qualitative preference assumptions while changing the objects of choice. We argue that such an approach will lead to extended applicability of the qualitative preference assumptions and that behavioral restrictions may not generalize. We illustrate these arguments by considering a theory which retains the qualitative preference assumptions of Von Neumann-Morgenstern (1944) while changing the objects of choice. In particular, we illustrate that the qualitative preference assumptions of Von Neumann-Morgenstern (1944) are consistent with the evidence of Ellsberg (1961) and that the restriction that certainty equivalents are decreasing in risk aversion does not hold for the alternative object description.; The third chapter analyzes exchanges of decision power between two parties; power over oneself is exchanged for power over an opponent. For a simple class of environments, this chapter illustrates when and why gains from such a power exchange exist. For this simple class, we illustrate that some type of conflict of interest is a necessary condition for gains from trade. Thereafter, we show that whenever gains from trade is possible, a Pareto optimal outcome results after the power exchange.