Date of Award

2017

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Graduate Group

Economics

First Advisor

Katja Seim

Abstract

This dissertation consists of three chapters that develop and implement economic models to analyze modern problems in Industrial Organization and Labor Supply. In the first chapter, I extend the standard BLP model (Berry et al. [1995]) to account for capacity constraints in a network and evaluate the welfare effects of the 2013 merger between American Airlines and US Airways. I show that including capacity as a constraint in the profit maximization problem that airlines face generates better out-of-sample predictions and leads to different policy implications. In particular, I find that the merger increased consumer surplus by 1.5-1.7%, while the benchmark model could predict it to have decreased by as much as 4.5%. In other words, ignoring capacity constraints could lead regulators to erroneously believe that this merger harmed consumers. I find that, on average, the merger increased the variable profit margins of airlines by 0.3-0.4%, and American Airlines' by 2.5%. I develop and implement an approach for ex-post merger evaluation that could be useful in antitrust legislation.

In the second chapter, I extend the theory of efficiency wages (Shapiro and Stiglitz [1984]) to incorporate employer-sponsored health insurance. I develop sufficient conditions under which the Affordable Care Act increases efficiency wages. In particular, if the Affordable Care Act succeeds, at least in part, in inducing employers to provide health insurance and individuals to self-insure, then wages will rise after its implementation. I suggest that the Affordable Care Act may provide efficiency wage subsidies towards the welfare-maximizing wage level, and numerically show the existence of regions where this is the case.

In the third chapter, I extend Mirrlees' theory of optimal taxation (Mirrlees [1971]) to include endogenous job search. I use a public-use microdata file on the Canadian labor force to calculate the optimal, revenue-neutral federal tax rates. The results are highly sensitive to the level of inequality aversion chosen for the social welfare function. The optimal tax rate schedule is hump-shaped in income.

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