Abstract

This thesis consists of three chapters. Chapter 1 theoretically studies a favor exchange model between two infinitely lived agents. Under private information, the efficient strategy is not incentive compatible. We propose a class of Markov strategies, which we call Bounded Favors Bank strategies (BFB hereafter). Within the class of BFB strategies, we consider two types of the BFB strategy. A type of BFB strategy which prescribes a form of reward for the agent who provided the most favors is referred to as BFBr strategy; another type of BFB strategy which prescribes a form of punishment for the agent who received the most favors is referred to as BFBp strategy. We show that the payoffs of BFBr and BFBp strategies can approximate the efficient outcome under private information and the BFBp strategy can achieve a higher long-term payoff.

Chapter 2 experimentally test the theoretical model in Chapter 1. In the experiment, we examine the behavior of subjects and infer the strategies subjects employ under complete information and incomplete information. Our experiment shows that subjects cooperate to exchange favors substantially less often under incomplete information, the most commonly employed strategy switches from the efficient one to the non-cooperative one, and the BFB strategies are played with a statistically significant probability only under incomplete information. In addition, the BFBr strategy is played more often than the BFBp strategy, implying that using a form of reward may have more compliance than using a form of punishment in a long-term bilateral relationship with private information.

Chapter 3 provides theoretical and empirical findings on the incentive effect of peer recognition on content provision. Our theoretical model illustrates how the incentive could be adversely affected by reputation and privacy concerns. Employing a unique data set from the largest Chinese Q&A platform, we analyze the content provisions of all the influencers with more than 10,000 followers on the platform over two years. Using an instrumental variable approach, we find that a simple OLS method is likely to underestimate the incentive of peer recognition due to the adverse effect of strategic behaviors of influencers.