Essays in industrial organization

This dissertation consists of empirical and theoretical essays that examine a variety of incentive problems.; The first essay is an empirical one that examines incentives for collusion in an auction market. It investigates whether bid prices for highway construction are related to conditions that favor the formation of a cartel. The probability of a successful cartel is hypothesized to be higher when there is more repeat bidding (due to lower cost of negotiation), resulting in a higher average price. The empirical results support the prediction. Also, as the number of firms increases, the cost of negotiation increases making cartels less profitable. Consistent with this reasoning, it is found that winning bids fall as the number of bidders rises until there are about 6 to 8 firms. Since subsequent entry has no effect on the winning bid price, it is concluded that the highway construction market becomes competitive once there are about eight bidders.; The other two essays examine a "double moral hazard problem". Double moral hazard exists when the outcome of a production process is influenced by the unobservable actions of both the employer (principal), and the employee (agent). That the jointly efficient outcome is unattainable due to double moral hazard is well known. The main contribution is to show that employment of multiple agents permits contracts that completely or partially resolve the double moral hazard problem. This incentive to employ multiple agents is shown to be independent of the well-known incentive to use multiple agents' outputs to monitor one another when the random components of the outputs are correlated. The use of multiple agents can resolve all incentive problems when there is a moving support on output (essay 2). Introducing another agent whose output also depends on the principal's choice distinguishes shirking by the principal from that of an agent. In the case of a nonmoving support on output (essay 3), although the jointly efficient outcome is not attainable, use of multiple agents does improve the nature of the optimal contract.