The main theme running through these three chapters is that economic agentsare often forced to respond to events that are not a direct result of their actionsor other agents actions. The optimal response to these shocks willnecessarily depend on agents' understanding of how these shocks arise. Theeconomic environment in the first two chapters is analogous to the classicchain store game. In this setting, the addition of unintended tremblesby the agents creates an environment better suited to reputation building.The third chapter considers the competitive equilibrium price dynamics inan overlapping generations environment when there are supply and demandshocks.
The first chapter is a game theoretic investigation of a reputation buildinggame. A sequential equilibrium model, called the "error prone agents" model,is developed. In this model, agents believe that all actions are potentiallysubjected to an error process. Inclusion of this belief into the equilibriumcalculation provides for a richer class of reputation building possibilities thanwhen perfect implementation is assumed.
In the second chapter, maximum likelihood estimation is employed to test the consistency of this new model and other models with data from experimentsrun by other researchers that served as the basis for prominent papersin this field. The alternate models considered are essentially modificationsto the standard sequential equilibrium. While some models perform quitewell in that the nature of the modification seems to explain deviations fromthe sequential equilibrium quite well, the degree to which these modificationsmust be applied shows no consistency across different experimental designs.
The third chapter is a study of price dynamics in an overlapping generationsmodel. It establishes the existence of a unique perfect-foresight competitiveequilibrium price path in a pure exchange economy with a finite timehorizon when there are arbitrarily many shocks to supply or demand. Onemain reason for the interest in this equilibrium is that overlapping generationsenvironments are very fruitful for the study of price dynamics, especiallyin experimental settings. The perfect foresight assumption is an importantplace to start when examining these environments because it will producethe ex post socially efficient allocation of goods. This characteristic makesthis a natural baseline to which other models of price dynamics could becompared.
