Essays in Applied Economic Theory

This dissertation applies and adapts economic theory to real-world applications. The first two chapters analyze the effects of strategic wage setting in labor markets on efficiency and the distribution of rents. Whereas the first focuses on the effects of firm asymmetry with respect to size and productivity, the second chapter deals with acquisition of complementary inputs under strategic considerations. The third chapter introduces an equilibrium concept with endogenous evaluation cycles, the number of time periods over which agents coordinate, in the framework of social comparison and adaptive learning.;The first chapter analyzes the effects of firm-size variation on the performance of central clearing houses in high-skill labor markets such as the markets for medical interns in Canada and the US. I find that strategic wage setting in centralized markets governed by a deferred acceptance algorithm does not result in assortative matching. While firms compete with others of similar quality within market segments, large firms face additional incentives to diversify their bidding behavior. As a consequence, large firms tend to offer lower wages in expectation than their smaller competitors. As for the distribution of surplus, firms gain from the introduction of a central clearing house when compared to a competitive (decentralized) outcome. These additional profits are bought at the cost of workers, who earn wages well below the competitive level. Finally, I show that in equilibrium firms do not gain from offering different wages for different slots. Thus strategic wage setting in the presence of a central clearing house is compatible with absence of wage variation within firms.;The second chapter shows that hiring of complementary workers from separate markets via strategic wage setting to form teams guarantees assortative matching as long as bidding decisions are met simultaneously. The resulting wage distribution is convex in worker skill. These findings extend the well known general equilibrium results of the O-ring production technology in large markets to finite markets and strategic bidding. Assortative matching of workers is also robust to the introduction of heterogeneous firms. While workers are always perfectly matched to each other, the sorting of teams to firms, the principals, is only assortative in expectation.;Finally, it takes sequential hiring to break up assortative team-building. Sequential hiring implies path-dependence of firms and thus rewards workers hired earlier in the process relatively more. An important application of sequential input acquisition is entrepreneurship. Finally, the third chapter draws from the sociological literature that suggests that actions are at least as much driven by social comparison as by myopic motivations. This idea has been translated into aspiration-based games. Agents form expectations based on their social network which they attempt to achieve in a stylized stimulus-response learning model. This paper introduces a solution concept allowing players variable and endogenously determined time periods between stimulus and response. While improving on equilibrium selection, variable response times also diminish the problem related to efficiency and the smallest unit of contribution in collective action games. The equilibrium concept also provides an intuitive of coordination via learning in collective action games.