| Distortions that affect macroeconomic outcomes are an important avenue through which we can explain differences in cross country output and productivity. In this thesis I concentrate on two types of distortions, political economy and informational distortions. In Chapter one, I build a model of intermediated corruption where interactions between government bureaucrats and those who bribe them are mediated by a third party. I show that intermediation has significant effects on the incidence of corruption and the prices entrepreneurs pay for permits. When corruption is particularly acute, measures that increase the frequency with which government bureaucrats are audited often have the undesirable result of increasing the prevalence of corruption because of intermediation. In Chapter two I explore the link between corruption and inequality by building a model in which tax collectors are corrupt. I find that as inequality increases, the frequency of corrupt transactions increases as well. I also find that where corruption is more severe, because wealthier individuals tend to pay lower taxes, inequality is higher. I perform a few quantitative experiments to better understand this linkage. Chapter three explores distortions that are caused by adverse selection in markets with search frictions. I find that when participants are concerned about the information they reveal through their interactions in the market, the distortions to liquidity are deeper and that equilibrium selection is significantly affected. I also find that markets with reputational concerns are more sensitive to outside shocks. |
