Essays in applied economic theory
My dissertation studies the application of economic theory in various settings. Each chapter begins with a basic intuition or question, and then develops the most appropriate methods to investigate. The questions addressed and results generated are interesting both from a theoretical and practical standpoint. The first chapter provides a general model for analyzing affiliate marketing contracts in online advertising, and presents a novel explanation for the diversity of contracts which exist in the industry. Affiliate marketing is an online, pay-per-performance advertising industry, where advertisers must specify the user action (impression of the ad, user click, final sale, etc.) on which to remunerate publishers "affiliates" who advertise on their behalf. In practice, many different actions are utilized. The main result here is that if users are heterogenous, and publishers know more about their users than advertisers, then the specified action serves as a selection mechanism that incentivizes the publisher to advertise only to a desirable set of users. Also, choosing the appropriate action minimizes expenses to the advertiser. When there are many different user types, each with varying worth to both the advertiser and publisher, achieving both of these goals requires a rich set of contractible actions. More generally, the approach used here can be implemented in other environments where asymmetric information and adverse selection play a role. The second chapter studies the rebound effect, or the increased use of energy services following an increase in the efficiency of that service. This effect is widely studied in the literature, but it usually only considered in a single-service environment. Such a framework ignores the potentially significant indirect rebound effects which occur through increased purchasing power for other services, and does not allow for joint efficiency improvements across many services, what we call ``efficiency correlation.'' We develop a household production model with two energy services and distinct but simultaneous efficiency changes to test the implications of efficiency correlation on net energy elasticities and the rebound effect. Positively correlated efficiency choices across end-uses increase technically feasible energy reductions but also drive additional rebound responses that erode these savings. Moreover, we find that negative correlation can significantly reverse any energy savings (e.g. a household installs energy-saving window panes but then trades in their sedan for a SUV), but that current Federal efficiency standards make this scenario unlikely. This paper offers new insight into a host of additional behavioral responses to efficiency improvements, particularly the incidence of efficiency correlation across different energy services, and highlights its implication for realized energy savings. The third chapter studies the effect of negative equity and landlock on household mobility and employment. This paper incorporates a novel friction -- that households which are both underwater and insolvent cannot sell their home -- into a search model where agents face a restriction of job opportunities based on their net asset positions. Ultimately, agents in deep-enough negative equity and insolvency quit searching altogether, reducing labor supply and mobility. Data from the Survey of Consumer Finances present empirical evidence which is consistent with this result. The welfare gains from removing this friction suggest that a median income earner is willing to pay about 2% of her income, or between 3-4 percentage points in additional interest on her debt to remove this constraint. This suggests that the landlock effect represents an incomplete lending market. If feasible, homeowners would be willing to compensate lenders to swap-out mortgage debt with other loans which do not constrain mobility. Removing the landlock restriction also results in higher search effort and lower durations, as households are better off being able to search and obtain better employment opportunities when they are underwater, rather than receiving interest reductions typical of current mortgage-finance policy.