Essays in organization formation and decision making
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This thesis consists of three essays in microeconomic theory. The first two are about the formation of organizations, and the third is about individual or organizational decision making in ambiguous settings. In the first essay I explore the implications of costs associated with binding agreements on equilibrium agreement structures. Establishing binding agreements is often costly in real world economies. These contracting costs are usually regarded as harmful by economists as the costs decrease the gains from cooperation. They affect which agreements form by changing the incentives of agents, potentially prevent the establishment of efficient contracts. Using an alternating offers bargaining model of coalition formation I show that the presence of transaction costs can lead to an efficient outcome in situations where inefficiency arises in equilibrium without these costs. These results provide new insights for policies targeting transaction costs. There are many situations in Economics and Political Science that involve limited possibilities for firms or parties to organize themselves into groups, mostly due to regulatory restrictions. In addition, in these settings the surplus of a given group often depends on the organizational structures formed outside of the group. The second essay introduces a coalition formation model that is able to analyze markets with both restricted cooperation and externalities across coalitions. This concept allows a more realistic modeling, opening the possibility to use this framework to analyze the welfare effects of mergers. In the third essay I propose a new model of decision making under uncertainty with multiple priors that is, unlike the well-known model of Gilboa and Schmeidler (1989), able to express attitude towards ambiguity. In addition, the decision does not necessarily depend on the two extreme (worst case and best case) priors as in the model of Ghirardato et al. (2001). I use choice correspondences by lexicographic semiorders that are generalizations of the choice functions defined in Manzini and Mariotti (2012). I also provide a method constructing lexicographic semiorders for choosing from ambiguous acts.