Essays in political economy and industrial organization

The first essay provides a multiperiod model of political competition in which voters imperfectly observe the electoral promises made to other voters. Imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary. Government spending is larger than in a world of perfect observability. Transfers are partly financed through government debt, and the size of the debt is higher in less transparent political systems. The model provides an explanation of fiscal churning, and of the choice of inefficient tools of redistribution. An implication of the model is that increasing the transparency of the political system does not unambiguously improve efficiency: transparency of transfers is beneficial but transparency of revenues can be counterproductive.; The second essay develops a dynamic model of transactions in used capital to illustrate the role of lessors as intermediaries that enhance the efficiency with which aircraft are redeployed across carriers. Carriers trade aircraft either to replace their fleet or to reduce excess capacity. Trading frictions hinder the efficiency of the allocation of capital and lessors reduce frictions by centralizing the exchange. Thus, leased aircraft trade more frequently and produce a higher output than owned aircraft, as lower barriers to trade imply that lessees are more productive than owners and allow a finer pairing between quality of capital and productivity of carriers on leased aircraft. In the empirical section, consistent with the model, we find that (1) leased aircraft have a holding duration 40% shorter than owned aircraft; (2) leased aircraft have 8% higher output than owned aircraft. The estimates imply that most of the gain in output arises because lower barriers to trade increase the average productivity of carriers, and finer pairing contributes only to 0.14% of the gain. The estimates also imply that the gain from perfect pairing between quality and productivity would raise current output only by 0.56%.; Finally, the third essay studies patterns in the prices of aircraft over time and the relationship between volume of trade and depreciation of aircraft.