| This collection of essays introduces behavioral concerns on the part of the decision making agent in three standard economic decision models. The first essay takes an axiomatic approach to developing a model of other-regarding behavior. This model can be used to explain anomalies to standard predictions from the assumption that individuals care only about their own well-being. The paper introduces a new behavioral measure called the equal-division equivalent, and using that measure, an extensive comparative analysis of other-regarding behavior is performed to show the usefulness of the model. The second essay introduces morale into a standard principal-agent model. In this model, workers base their effort decision on the wage they are paid and also on their level of morale. The impact of morale on optimal effort levels and wage compensation schemes is analyzed, and the paper also shows that problems may arise when morale is not observable to the firm. In addition, the essay considers how the morale of one individual affects the morale of his coworkers, and it examines the impact of these dynamics on the firm's profit. The third essay looks at a monopoly firm's pricing strategy when consumers have transaction costs. It uncovers the monopolist's optimal pricing strategy when consumers have both constant and random transaction costs. The model can explain why monopolists make enticing offers to attract customers, and then once consumers have signed up, why the firm can charge significantly higher prices without losing customers' business. These essays underline the significance of including psychological factors in traditional microeconomic models because doing so improves the ability of the models to predict and explain. |
