Essays in Political Economy and Regulation

Public Deposited

In the first chapter, I study how political institutions can affect policymaking when the economy is in transition. I develop a framework where a transition process gradually restructures economic institutions so that the population's long-term preference may differ from its short-term preference. A democracy may fail to implement the optimal policy if the electorate does not take into account the increased benefit from transition in later periods. A dictatorship will implement the optimal policy if the dictator has complete information about the population's preference and if the increase in surplus due to transition is high. Under incomplete information, the effectiveness of a political institution critically depends on the level of uncertainty about the population's preference and the population's ability to adapt to economic policies. In the second chapter, I study a model of electoral competition where both economic policy and politician's effort affect voters' payoff. If voters cannot distinguish the effect of policy and effort, politicians acquire an implicit incentive to exert effort. This incentive can last through every period in an infinitely repeated game as long as there is uncertainty in every period regarding the policy's effectiveness. In the final chapter, which is coauthored with Peter Klibanoff, we study the strategic response of a monopolist to the most favored customer (MFC) clause in the context of the Medicaid reimbursement program. This clause guarantees that Medicaid pays the minimum price offered in the market (minimum price provisioning or MPP) or a proportion of the average manufacturer price (average price provisioning or APP), whichever is lower. We characterize the optimal pricing strategy of a monopolist under both of these clauses separately. The analysis shows that the minimum price increases under MPP. However, price in other markets may fall if the Medicaid consumers have inelastic demand. We provide a sufficient condition to determine the direction of change in prices under APP, when MFCs' demand is inelastic. Both of these clauses may change aggregate demand in either direction. Under MPP, social welfare decreases only if it results in lower aggregate demand

Last modified
  • 06/01/2018
Date created
Resource type
Rights statement