Two essays on applied economics

Abstract

This thesis is composed of two essays on applied economics. In the first, I examine the risk-laden choices of contestants in the TV game show, “Var Mısın Yok Musun?”. I had three objectives in exploiting a dataset of 248 contestants: (i) analyzing the path-dependence in choices; (ii) comparing the findings from Turkey with those of the US, the Netherlands, and Germany; (iii) examining the e↵ect of contestants’ characteristics on their choices. I find evidence that contestants have time-varying risk aversion. Additionally, I observe greater risk aversion among Turkish contestants. Finally, the odds of accepting an o↵er are high for females and contestants with high education but low for participants from the Black Sea and Mediterranean regions after controlling demographics and within-game variables. Females are more sensitive to the risk than males. In the second essay, I develop a static model to examine the relationship between capital misallocation and informality by looking at the e↵ects of exogenous changes in the wealth distribution, capital market imperfection, and tax enforcement. The model predictions are as follows: First, capital misallocation in the formal sector increases as tax enforcement increases due to the flow of informal entrepreneurs into the formal sector. Second, an increase in tax enforcement decreases capital misallocation in the intensive margin but increases it in the extensive margin. Third, as the borrowing constraint is relaxed, capital misallocation decreases. Fourth, the greater the wealth is distributed unequally among entrepreneurs, the greater the extent of capital misallocation. Empirical observations support these predictions.