Three essays on political economy and international trade

Chapter one, through a formal election model, examines whether politicians may select an ex ante efficient policy which the public mistakenly believe to be ex ante inefficient. When both voters and the incumbent politician are rational, it is found that the incumbent's reputation may improve if he or she accepts an unpopular policy and may deteriorate otherwise. Therefore, an unpopular policy may be accepted by a self-interested incumbent even though he or she might benefit from the implementation of a competing popular policy. When self-interested incumbents are pure office seekers, they always choose the efficient policy, regardless of whether the policy is popular or not. It suggests that a Democrat government's reputation of being nondogmatic will increase when backing a Republican policy, regardless of whether the policy is popular or not.;Chapter two examines the relationship between relative factor endowments and the political power of interest groups from the political economy approach of Grossman-Helpman (1994), where the government has trade taxes and subsidies at its disposal. I find that an interest group's political power increases with its factor endowment, and that the net welfare of an interest group increases with the endowment of another factor when the latter is unorganized, but decreases when the latter is organized. Endogenization of interest group formation, the cases of prisoner's dilemma among interest groups, immiserizing growth, and more interest groups being socially preferred to fewer are also studied.;Chapter three examines the welfare implications when a group of countries coordinate provisions of public goods (to form a union) that generate cross-country externalities, e.g., public R&D spending and environmental protection. It is assumed that the countries in this group coordinate while other countries remain atomistic. It is found that the group of countries will benefit from coordination only if it exceeds a critical size. This critical size increases with degree of externality and decreases with elasticity of substitution. This result is related to discussions in the European Union about the "Principle of Subsidiarity," which specifies whether a policy should be determined by the union collectively or by its members individually.