Search

This research considers social networks in informal insurance and mechanism design issues related to consumption externalities. Chapter 2 examines informal insurance networks. Defining an income-sharing arrangement as a link, I show that pairwise stable networks are regular and the degree depends on the relative value of income. Although the complete network is efficient, either high risk or high risk aversion weakens the incentive to add a link so that full risk sharing is less likely to be pairwise stable at the high level of risk. However, if the group size is large enough, the complete network is always pairwise stable regardless of the income-risk ratio. Additionally, asymmetric network structures may arise for heterogeneous agents. Chapter 3 and 4 consider consumption externalities. In Chapter 3, I develop an efficient allocation mechanism when there are consumption externalities. To implement an efficient outcome, the payment function of an incentive compatible mechanism separately reflects individual agents' valuation as well as the externalities. A seller's perspective leads Chapter 4 by comparing two prevalent selling mechanisms - English auction and posted-price selling. An English auction, of which the price is determined through buyers' competition, yields higher expected revenue under low externalities, whereas a posted-price selling, of which the price is set by the seller, is better for the seller at the high level of externalities.