Three essays on applied microeconomic theory.

The dissertation involves the fields of Microeconomic Theory and Political Economy. More specifically it analyzes strategic decisions in the electoral process and the sustainability of cooperation in repeated games. The first essay of my dissertation offers an explanation for the common observation that political incumbents face little competition when running for reelection. I explain this outcome by modeling the entry decision of potential election candidates as a process of self selection. Candidates choose either to enter a political race against a known-quality incumbent facing term limits or to wait for next period's open election. The model predicts that the entry decision is non-monotonic in candidate quality: both low-quality and very-high-quality candidates choose to enter the race. The tendency of mid-quality candidates to stay out increases the ex-ante probability that the incumbent will win, suggesting an explanation for incumbency advantage. The model captures multiple stylized facts of U.S. elections: incumbency advantage, uncontested incumbents and existence of "sacrificial lambs". The second essay investigates the consequences of adding a non-cooperative participant to a large community. I build on Kandori's arguments to show that the presence of a short-run player prevents cooperation in equilibrium. I show that contagious strategies do not sustain cooperative behavior and analyze whether any other strategies can sustain it. Furthermore, I suggest a plausible information technology that ensures a cooperative outcome by identifying the cooperative members of the community. Finally, in the third essay, I consider a model in which a community with heterogeneous agents has access to an information technology that identifies non-cooperative participants. I study how this information enables cooperation among permanent members of the society. Furthermore, I also analyze the consequences of defective functioning of this technology. This provides a rationale for why sellers in internet markets are particularly concerned with avoiding undeserved bad ratings.