Three papers in applied microeconomic theory

This thesis consists of three papers. In the first paper, we consider the incentive to free-ride on other's information signaling. We show that in an environment with increasing returns to scale and where action is costly, this incentive may lead to a delay in productive activity and to a cascade of activity once information is signaled.;The second and third papers model a plea bargaining problem in which prosecutors enter into plea bargains in order to conserve resources and thereby satisfy their effort or resources constraints. I show how these constraints can interfere with the information revelation role of trial. In contrast to previous papers, prosecutors target plea bargains at agents who have the highest probability of being innocent. By augmenting this basic model with a police investigation problem, I also show how plea bargaining may increase the incentive of socially benevolent police officers to misrepresent the severity of evidence. This, in turn, can increase the incentive of prosecutors to plea bargain. I also show how increased legal aid expenditures can divert prosecutorial resources away from wealthy defendants and toward poor defendants. This diversion can result in increased crime levels among wealthy agents.;I also show that the classic intuition that increasing the sanction associated with an offence increases deterrence does not necessarily hold in an environment with plea bargaining where the cost of trial is increasing in the severity of the sanction. This is due to the fact that increased sanctions increase the trial cost and therefore increase the surplus over which agents bargain. This can lead to not only more frequent but also more lenient plea bargains. I also show that proportionally increasing sanctions across offences can lead agents to substitute into more severe crime.