This dissertation is a collection of three essays on the economic implications of limited attention. It is supplemented with a general introduction (Chapter 1).The first chapter introduces an ongoing paradigm shift in the macroeconomic literature from full-information rational expectations to rationally inattentive economic agents. It then presents some characteristics of this new class of models and current challenges in the literature that motivates the work in this dissertation.The second chapter is a contribution to consumption theory. It studies the consumption-saving problem of a consumer who faces a fixed cost for paying attention to noisy information and whose attention strategy, i.e., whether or not she pays attention, can be a function of the underlying information. At the optimum, consumers chose to be at- tentive when evidence accumulates far from their prior beliefs. The model provides an explanation for four puzzling empirical findings on consumption and expectations. First, consumers' attention depends on the information content. Second, aggregate information rigidities vary over the business cycle. Third, consumers only react to large anticipated shocks and neglect the impact of small ones. Fourth, aggregate consumption dynamics vary over the business cycle. The third chapter is a theoretical contribution to the literature in behavioral public economics. It studies how information frictions in agents' tax perceptions affect the design of actual tax policy. Developing a positive theory of tax policy, it shows that agents' inattention interacts with policymaking and induces the government to implementinefficiently high tax rates. It then quantifies the magnitude of this policy distortion for the US economy. Overall, the findings suggest that existing information frictions - and thereby tax complexity - lead to undesirable, large and regressive tax increases.The fourth chapter is an empirical contribution to the macroeconomic literature on information frictions. Using the ECB survey of professional forecasters, it estimates a two margin forecast formation process that allows for forecast rounding on individual and consensus forecast data. Forecasters decide when to revise their forecast (extensive margin). When they do, they slowly incorporate new information (intensive margin) and may report a rounded value for their new forecast (rounding). It finds that these three rigidities simultaneously exist and estimate their respective contribution. The overall forecast stickiness is almost exclusively the consequence of the rigidities at the intensive margin. It then derives quarterly time series for the evolution of information frictions and proposes a simple mapping to account for these variations in economic models.

Media has become increasingly abundant and accessible. Due to the wealth of competing provides, consumer attention is an important limiting factor in information consumption. Since attention is uniquely scarce - one cannot buy more time - there may be far-reaching economic implications of changing how consumers allocate their attention. This dissertation is composed of three chapters, each analyzing a different consequence of consumer attention constraints. Broadly, the three chapters focus on: Measuring engagement spillovers that result from consumer attention cascades; understanding how promotional messages can affect attention paid to different spending categories; and investigating the implications of having more granular measurements of attention to advertising as well as studying how attention can be influenced by advertising content. The first chapter explores the importance of consumer attention in a context where consumers are choosing one or more coupons from a large set. Price promotions are typically offered in groups on websites, mailings and circulars, but little is known about how promotional offers in near proximity affect each other. Across two large-scale field experiments conducted on a multi-brand coupon website, we find that when lead promotions offer high-value deals, consumers are more likely to print subsequent offers, a finding we call a "lead offer spillover." Additional analyses and experiments indicate that larger lead offers increase consumer search for subsequent offers rather than changing evaluative judgments or generating complementarities between lead and subsequent offers. This highlights the importance to firms of attracting attention in the first place, as there can be positive downstream effects. The second chapter investigates how specific promotional messages can influence how consumers allocate their attention. We find that framing a savings message as benefiting the baby (i.e., Save "For Your Baby") significantly increases coupon printing. This framing effect is equivalent to an incremental $0.05 of coupon value and is larger than the effect of a traditional call to action (i.e., "Act Now"). Additional studies suggest the effect is primarily driven by mental accounting. Specifically, the beneficiary frame increases the likelihood an offer is coded as belonging to a particular budget category. The results suggest a novel, low cost pathway for marketers to increase promotion uptake. Focusing consumer attention on specific attributes or people in their lives can have important implications for marketing effectiveness. The concluding chapter addresses the challenge of measuring and maintaining viewer attention from the perspective of a TV broadcaster. Instant access to social media, news, and work has raised the opportunity cost of engaging with TV ads. The result may be a significant difference between traditional engagement measures, e.g., TV tuning, and measures which can capture more nuanced behaviors. This third chapter asks two questions relating to viewer behavior in the context of TV advertising. First, how do traditional TV audience measurement metrics relate to a novel set of viewer measures that may be more aligned with broadcasters' and advertisers' interests? Second, what is the relationship between these new measures and advertising content? To answer these questions, we leverage novel, in-situ, audience measurement data that use facial- and body-recognition technology to track tuning, presence (in room behavior), and attention for a panel of several thousand viewers and millions of ad impressions. We consider four different classifications of advertising content based on human and machine-coded features. We find meaningful differences in the absolute levels and dynamics of these behaviors, and can identify ad content for which viewers are systematically more likely to change the channel, leave the room, and stop paying attention. Such ads reduce the pool of attentionn to subsequent advertisers as well as to the platform itself, creating a negative externality. We quantify these spillover effects requiring advertisers to improve their content can result in significant increases in the cumulative levels of viewer tuning, in-room presence, and attention. Attention has historically been hard to measure, but that is rapidly changing. Browsers track what consumers are looking at on the web, while a multitude of devices (e.g. cell phones, TVs, and watches) can track how consumers are spending their time in real world, sometimes even linking acrions across the physical and digital domains. This dissertation leverages novel sources of data to investigate the importance of understanding how consumers allocate their attention. It provides evidence for positive benefits from grabbing attention in the multi-product choice context of online coupons; it describes the benefits of getting consumers to pay attention to the direct benefactor of their purchases; and it investigates the implications of better attention measurement in the context of TV advertising.

This first volume in a three-volume exposition of Shubik's vision of "mathematical institutional economics" explores a one-period approach to economic exchange with money, debt, and bankruptcy. This is the first volume in a three-volume exposition of Martin Shubik's vision of "mathematical institutional economics"--a term he coined in 1959 to describe the theoretical underpinnings needed for the construction of an economic dynamics. The goal is to develop a process-oriented theory of money and financial institutions that reconciles micro- and macroeconomics, using as a prime tool the theory of games in strategic and extensive form. The approach involves a search for minimal financial institutions that appear as a logical, technological, and institutional necessity, as part of the "rules of the game." Money and financial institutions are assumed to be the basic elements of the network that transmits the sociopolitical imperatives to the economy. Volume 1 deals with a one-period approach to economic exchange with money, debt, and bankruptcy. Volume 2 explores the new economic features that arise when we consider multi-period finite and infinite horizon economies. Volume 3 will consider the specific role of financial institutions and government, and formulate the economic financial control problem linking micro- and macroeconomics.

The first essay of this dissertation uses a general equilibrium model of the U.S. economy to study the welfare implications of a biofuel blend mandate and consumption subsidy in the presence of pre-existing labor and fuel taxes. The tax interaction and revenue recycling effects are found to be significant relative to the overall costs of the policies and to previous partial equilibrium studies. I find empirically that the tax credit is welfare superior to the mandate for a given level of ethanol consumption, and this result is robust to the presence or absence of the labor tax. The second essay studies consumer behavior in durable goods markets. I extend a classic model of consumption with status-seeking preferences to incorporate a visible durable good stock with three attributes: quality, average item age, and stock size. "Newness" is an important feature of durable goods consumption, and I illustrate how the newness of a durable good stock, as captured by average item age, could be used as the status signal in a signaling equilibrium. I analyze Consumer Expenditure Survey data on the consumption of apparel goods which vary quasi-experimentally in visibility, and my empirical results suggest that newness and/or stock size may be used more than quality as a status signal, if consumers use apparel consumption to signal income. The third essay analyzes a model in which environmental regulation can potentially satisfy the "Porter hypothesis." I show theoretically how limited attention to waste production on the part of behaviorally-biased firm managers can result in internally sub-optimal production choices and the potential for "win-win" environmental regulation which increases net social benefits and also makes the firm itself better off.

The first chapter studies how a gift exchange labor market reacts to the occurrence of negative shocks. One-round shocks may hit either workers' wages or employers' earnings. In our model, other-regarding preferences suffice to predict gift exchange and wages above the competitive level. The model predicts wage rigidity if we add wage illusion and loss aversion. Using a real-effort laboratory experiment, we find support for this model. When there are no shocks, there is gift exchange. After a wage shock we see strong nominal wage rigidity and no impact on workers' effort, as predicted. Rigidity is also observed after a productivity shock, but here we observe increases in effort, especially at low wages. The latter is contrary to the model predictions and suggests that productivity shocks alter gift-exchange patterns. The second chapter studies how workers' effort responds to wage cuts and whether employers anticipate these reactions correctly. Hiring happens by initial offers before shocks are announced. The non-binding offers can then be adjusted. To model responses to wage cuts, I add negative reciprocity to the previous model. Without shocks, employers should never cut wages. Adjustment might be, however, justifiable after a shock if sharing its burden is considered to be fair. With a laboratory experiment, I find that although wage cuts are counterproductive, their effects are insignificant in the absence of shocks. After shocks, wage cuts are punished, regardless of whether the shock hits employers or workers. The third chapter studies if nudges influence behavior as effectively when people are aware of nudging as when they are unaware. I use a limited attention model that distinguishes between two kinds of nudges. System 1 nudges (e.g., defaults) provide quick decision-making shortcuts, while System 2 nudges encourage reflective thinking, e.g., costbenefit analysis. Transparency is predicted to reduce the effectiveness of System 1 nudges but not that of System 2 nudges. Moreover, conditional on Choice Architects having image concerns, transparency is predicted to reduce the use of System 1 nudges while increasing the use of System 2 nudges. With an online framed field experiment, I find that transparency does not change how Choice Architects use nudges. The effects of System 1 nudges are somewhat weakened by transparency, but System 2 nudges are unaffected.