Essays on International Economics

University of Minnesota Ph.D. dissertation. August 2014. Major: Economics. Advisor: Timothy J. Kehoe. 1 computer file (PDF);viii, 102 pages, appendices A-C.This dissertation consists of three essays. In the first essay, Enoch Hill and I present a general equilibrium model where heterogeneous consumers endogenously choose whether to become workers, consumers or entrepreneurs in order to analyze how limits on the leverage of banks affect real output. In our model tighter limits on the leverage of banks cause an increase in the spread between the interest rate that banks charge for loans and the interest rate that banks pay for deposits. A higher spread results in two types of distortions: First, firms with the same productivity will have different size. Second, productive firms will cease to exist, while nonproductive ones will enter. These distortions result in lower production.In the second essay, Enoch Hill and I develop a general equilibrium model of theft, private security and public law enforcement (PLE) which matches both macro and micro empirical evidence. We find a non-monotonic relation between PLE and aggregate production. In particular, for countries with relatively small amounts of PLE, increasing the level can result in a reduction of aggregate production and welfare primarily due to an increase in the incarceration rate. However, for countries with higher levels of PLE, an increase in the level improves production and welfare. We also find the private security causes a negative externality in economies with low levels of PLE.In the third essay, Enoch Hill, Michael Maio and I propose an original model of firm hierarchy which suggests that firm structure is important for understanding the wage structure. In our model, more productive firms choose to employ more levels of management, which requires a higher average level of skill in workers and consequently a higher average skill premium. This is consistent with what we document in the Chilean data and also agrees with the firm size to skill premium relationship commonly documented in the literature. Additionally, our model predicts that skill premium is increasing in the ratio of workers to managers, a fact we also observe in the Chilean data