| The following three essays deal with issues in development economics, political economy, and corporate finance.; In the first essay, we wish to understand whether foreign aid been effective in stimulating growth, or just government spending. We use yearly variations in the price of oil to construct a powerful new instrument to test the impact of an important but often overlooked aid channel: money given by wealthy OPEC nations to their poorer Arab and/or Muslim allies. We find that the aid may have had small growth effects (at least in the short-run) but very large government consumption effects. Our instruments avoids the endogeneity issues prevalent in the aid literature, and we are able to include country fixed effects, thereby reducing omitted variable bias.; In the second essay we create a political economy model of natural disasters. Although events beyond our control may trigger a disaster, the level of government preparedness and response greatly determines the extent of suffering incurred by the affected population. Our model, supported by case studies and preliminary empirics, explains why some governments prepare well for disasters and others do not. We show how the presence of international aid distorts this choice and increases the chance that governments will under-invest. Policy suggestions that may alleviate this problem are discussed.; In the third essay, I wish to understand the proper mix of stock-based vs. profit-based incentive compensation for CEOs, and the consequences of deviating from this mix. I develop a model that shows that this ratio should be increasing in the size of a firms long-term investments but decreasing in the firm's price-earnings ratio. Empirically, I find suggestive evidence that the ratio increases in both of these arguments, which means that CEOs may be engaged in short-termism and/or market timing. One would expect to see firms with very high levels of stock-based compensation misleading shareholders about the long-term prospects of their firms, and I find that firms with high ratios of stock to profit based incentives also experienced large run-ups and falls during the internet bubble of 1997-2003. |
