Essays in causes and consequences of political competitiveness

This dissertation studies some causes and consequences of political competitiveness. Political competitiveness---which many interpret as the degree of democracy---can be analyzed using standard economic tools from the industrial organization literature. All regimes are constrained by the threat of entry, and thereby seek some combination of popular support and political entry barriers. In the first essay, I study the effect of political market size on democracy using a simple framework of monopolistic competition. The model predicts that many public policies are unrelated to political competitiveness, and that even nondemocracies regimes should tax far short of their Laffer curve maximum. Since entry barriers are a form of increasing returns, democratic countries are more likely to subdivide, nondemocratic countries are more likely to merge, and nondemocratic mergers are more likely to be violent. "The size of the market" encourages competition. When barrier to entry are treated as endogenous sunk cost, however, the supply of democracy responds negatively to market size and hence political freedom being a normal good is not a sufficient condition for the Lipset hypothesis. The model is extended in the second essay to consider the role of heterogeneity of preferences over public policies. When special interests politics are important, an increase in heterogeneity of the society fosters democratization. Political market segmentation in a two-party state induces polarized politics. Difference in policy design incentive across political regimes implies a U-shaped relationship between policy discrimination and democracy. The final essay is an empirical study of the effect of political market size on democracy. I exploit variation in the timing and size of oil discoveries to identify the impact of oil wealth on democracy. I use a unique dataset describing worldwide oil exploration, discoveries, and oilfield geology. Controlling for exploratory effort, I find that discovering oil significantly decreases a country's 30-year change in democracy, as measured by the Polity Index. I estimate that, on average, discovering 100 billion barrels pushes a country's democracy level 30 percentage points below trend. The estimated effect per barrel is larger for oilfields with higher quality oil and lower exploration and extraction costs.