Aney, Madhav Shrihari
(2009)
Institutional design under asymmetric information.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis contributes to the literature that seeks to understand institutions. In particular the aim of this thesis is to shed light on how certain institutions arise in society as a result of collective choice, how in turn they shape behaviour of agents, and finally what their welfare properties are. These questions are tackled using the methodology of microeconomic theory where agent preferences, the state of technology, and the informational environment are taken as exogenous. In particular it is argued that the existence of different constraints on the informational environment can give rise to a rich theory of institutions that can explain why inefficient and seemingly inefficient institutions arise in a second best world. The first chapter of this thesis is concerned with the incidence of costly dispute resolution in society. The question of why agents fail to revolve disputes costlessly is tackled. This contributes to the positive theory of individual behaviour given the existence of certain institutions. The second chapter of this thesis tackles the question of why the judiciary is characterised by certain inherently costly attributes. This contributes to the normative theory of institutional choice. The last chapter deals with the positive question of how institutions are chosen. A model is presented where the political alignments in a society are endogenously generated and the effect of varying the informational environment on these alignments is analysed. These three chapters collectively contribute to the incipient theory of institutions that comprises of two elements; first where the existence of institutional structure arises as an equilibrium interplay between individual choices and technological and informational constraints, and second where conversely, individual games are shaped by the structure of existing institutions.
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