Three Essays on Applied Microeconomics: Consumer and Employee Behaviour

Abstract

This dissertation consists of three chapters, each of which can be considered an independent essay. The three essays contribute to labor economics, sports economics, and behavioral economics. The first chapter focuses on pay and performance in a team environment. Working in teams increases productivity but also generates incentives to shirk. Recent research suggests that peer enforcement, coupled with financial incentives in a setting of repeated interactions, can play a role in deterring shirking in teams. This paper, entitled "Peer Enforcement in Teams: Evidence from High-Skill Professional Workers with Repeated Interactions," analyzes 10 years of performance and compensation data for NFL offensive linemen, a high-skill, high-salary, repeatedly interacting team, using the Hausman-Taylor estimator to control for unobservable individual-specific heterogeneity. We find evidence that teammates' effort signals reduce the salaries of individual offensive linemen, providing a low powered sanctioning mechanism for individual workers in this setting. A separate, independently monitored individual effort signal also reduces salaries. The second chapter of my dissertation is "Consumption Commitments and Simultaneous Insuring and Gambling: evidence from Canada." This paper extends recent work by Chetty and Szeidl (2007) on a classic economic research question: why do some individuals simultaneously buy insurance and gamble? This behavior is "contradictory" to von Neumann-Morgenstern expected utility theory because insurance purchase indicates risk aversion while gambling indicates risk loving. Chetty and Szeidl (2007) propose a novel explanation based on consumption commitments which magnify risk aversion, inducing Friedman-Savage local non-concavity in the utility function. Theoretically, the paper shows that commitments increase risk loving over gambles with large uncertain payoffs but for gambles with moderate-to-large uncertain payoffs, moderate commitments amplify risk loving, while large commitments mitigate risk loving. Empirically, patterns in household decisions to participate in government-run lotteries, small prize gambles (including casino gambling, slot machines, and video lottery terminals), and to purchase life insurance support these predictions; households with large consumption commitments are more likely to participate in activities with large uncertain payoffs. The last chapter, "The Relationship Between Consumer Spending on Exercise, Sports Betting and Attending Sporting Events" also utilizes data from the SHS, but a large sample - more than 145,000 households. We investigate the relationship between consumer spending on three alternative leisure time activities: sports betting, exercise and attending live sporting events. Recent proposed changes in legal sports betting, and claims about attending games and participation in physical activity motivate analysis of these categories of consumer spending. Using several versions of an Almost Ideal Demand System (AIDS) and the related Quadratic AIDS (QAIDS) models, we estimate the parameters that determine the relationship between consumer spending on these activities. Results show that betting and attending games are complements. Betting and exercise, and attending games and exercise are substitutes.

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