Essays on Economic Behavior and Design

Abstract

This dissertation consists of essays on economic behavior and design, with an emphasis on understanding how people make decisions in labor markets and social programs. The first two chapters, written jointly with Linh T. Tô, examine how reference points influence behavior. The first chapter studies the dynamics of reference dependence by asking how the timing of earnings within a day affects labor supply decisions. We find that money is not fungible over time, inconsistent with a standard neoclassical model of intertemporal optimization as well as alternative behavioral models invoking daily income targets. We reconcile these views by proposing a model of adaptive reference points. The second chapter empirically investigates the speed of adjustment of the reference point, a key degree of freedom in models of reference dependence. We show that reference points tend to adjust more readily in the direction of gains rather than losses. Our results are inconsistent with the idea of reference points based on rational expectations, which would imply no such asymmetry in reference-point adjustment. The final chapter explores the design of policies for allocating public housing. I present a model of public-housing allocation and investigate the design of allocation mechanisms that are strategy-proof, or not subject to strategic manipulation. I characterize a new mechanism---the Multiple-Waitlist Procedure (MWP)---which allows applicants to optimally trade off their preferences for different units and waiting times by choosing among a set of waiting lists. Using estimates of preferences for public housing in Pittsburgh, I find that a counterfactual change from existing allocation mechanisms to the MWP would lead to substantial welfare gains.