| The chapters of this dissertation examine efficiency failures in three areas of applied microeconomics: experimental economics, public finance, and game theory. In each case, we look at ways to resolve these failures to promote the public good.;The first chapter, "An Experimental Test of the Pigovian Hypothesis," looks at two different policies designed to reduce congestion in a common-pool resource (CPR). The predictive power of game-theoretic results with respect to an optimal subsidy in a common-pool resource game remains an open question. We present an experiment with training and a simplified decision task, allowing more tractable computerized CPR experiments. We find that subject behavior converges to the Nash prediction over a number of periods. A Pigovian subsidy effectively moves subject behavior to the pre-subsidy social optimum. Finally, we find a significant but non-persistent effect of information provision in moving subjects toward the social optimum.;The second chapter, "Apples to Apples to Oranges," looks at efficiency and equity failures across states resulting from public expenditure. The literature on fiscal equalization and horizontal equity has established that measures of fiscal capacity should be complemented by measures of fiscal need: the ability of a sub-national government to provide services given an average level of revenue. This chapter introduces an extension of the Representative Expenditure System that uses regression methods and both state and metropolitan statistical area (MSA) level data, allowing for comparability of input costs, service requirements, and levels of need. The regression-based results are robust across state- and MSA-level formulations, although state-level approaches overestimate need for larger, less populous states. All regression-based results diverge from previous workload-based approaches.;The third chapter, "Evading Nash Traps in Two-Player Simultaneous Games," looks at efficiency failures in two-player simultaneous games. In some important games, Nash equilibrium selects Pareto-inferior equilibrium profiles. Empirically, Nash equilibrium sometimes performs poorly when predicting actual behavior. Previous approaches rely on repetition or external correlation to support efficient outcomes in simultaneous games. This chapter presents two new concepts: "detente" and "no-initiative," in which players consider their own strategies and other-best-responses. We discuss their efficiency and descriptive properties across a set of simultaneous games. |
