The Economics of Information with Applications in Advertising and Philanthropic Organizations
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Information is a valuable commodity in the market place. Consumers gather information for products, producers supply information about product prices, quality, characteristics, etc., investors collect information on firms, economic indicators, and trades of others in an effort to increase investment returns, and so on. This quest for information can be broken down to a simple objective: economic agents seek information in order to optimize their well being. Thus, the availability of information can impact behavior.In this dissertation, I study two distinct ways in which information affects the behavior of economic agents. In the first two chapters, I study why producers have an incentive for supplying advertising content that is generally dismissed in standard economic models of advertising. I find that consumer preferences lead to profit motives for firms to invest in this type of advertising content. A content analysis of television advertisements lends support to my models by revealing the frequencies of various types of advertising content.In the third chapter, I demonstrate how information about changes in tax structures affect the behavior of philanthropic organizations. Specifically, the tax rate cuts associated with the Jobs Growth and Tax Relief Reconciliation Act of 2003 resulted in an adjustment in the behavior of nonprofit organizations. In my empirical analysis, I find that the passage of the tax law resulted in a decrease in the effectiveness of non-employee related fundraising expenses, but an increase in the effectiveness of employee related fundraising expenses. These changes are associated with a decrease in average non-employee related fundraising expenses and an increase in employee related fundraising expenses. These findings are important for philanthropic organizations so they can understand how to respond to such policies and maintain desired levels of services.