| Summary: | Thesis advisor: Utku Unver === This dissertation is composed of three essays in microeconomic theory. The first and second essays are in the theory of matching, with hierarchical organizations and complementarities being their respective topic. The third essay is in on electoral competition and political polarization as a result of manipulation of public opinion through social influence networks. Hierarchies are a common organizational structure in institutions. In the first essay, I offer an explanation of this fact from a matching-theoretic perspective, which emphasizes the importance of stable outcomes for the persistence of organizational structures. I study the matching of individuals (talents) via contracts with institutions, which are aggregate market actors, each composed of decision makers (divisions) enjoined by an institutional governance structure. Conflicts over contracts between divisions of an institution are resolved by the institutional governance structure, whereas conflicts between divisions across institutions are resolved by talents' preferences. Stable market outcomes exist whenever institutional governance is hierarchical and divisions consider contracts to be bilaterally substitutable. In contrast, when governance in institutions is non-hierarchical, stable outcomes may not exist. Since market stability does not provide an impetus for reorganization, the persistence of markets with hierarchical institutions can thus be rationalized. Hierarchies in institutions also have the attractive incentive property that in a take-it-or-leave-it bargaining game with talents making offers to institutions, the choice problem for divisions is straightforward and realized market outcomes are pairwise stable, and stable when divisions have substitutable preferences. Complementarity has proved to be a challenge for matching theory, because the core and group stable matchings may fail to exist. Less well understood is the more basic notion of pairwise stability. In a second essay, I define a class of complementarity, asymmetric complements, and show that pairwise stable matchings are guaranteed to exist in matching markets where no firm considers workers to be asymmetric complements. The lattice structure of the pairwise stable matchings, familiar from the matching theory with substitutes, does not survive in this more general domain. The simultaneous-offer and sequential-offer versions of the worker-proposing deferred acceptance algorithm can produce different matchings when workers are not necessarily substitutable. If no firm considers workers to be imperfect complements, then the simultaneous-offer version produces a pairwise stable matching, but this is not necessarily true otherwise. If no firm considers workers to be asymmetric complements, a weaker restriction than no imperfect complements, then the sequential-offer version produces a pairwise stable matching, though the matching produced is order-dependent. In a third essay, I examine electoral competition in which two candidates compete through policy and persuasion, and using a tractable two-dimensional framework with social learning provide an explanation for increasing political polarization. Voters and candidates have policy preferences that depend upon the state of the world, which is known to candidates but not known to voters, and are connected through a social influence network that determines through a learning process the final opinion of voters, where the voters' initial opinions and the persuasion efforts of the candidates affect final opinions, and so voting behavior. Equilibrium level of polarization in policy and opinion (of both party and population) increases when persuasion costs decrease. An increase in homophily increases the equilibrium level of policy polarization and population opinion polarization. These comparative static results help explain the increased polarization in both the policy and opinion dimensions in the United States. === Thesis (PhD) — Boston College, 2013. === Submitted to: Boston College. Graduate School of Arts and Sciences. === Discipline: Economics.
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