Title: Three essays in applied economics
Description: This thesis consists of three essays. The first two essays consider inefficiencies that arise from market congestion. The third essay considers the use of U.S. foreign aid to deter anti-U.S. terrorist attacks. The first essay is "Wage Formation in Unraveled Markets". Some authors have argued (Levin and Bulow [2006]) that a centralized matching market's wage distribution is compressed and the total wage bill lower compared to that of a perfectly competitive market. We model a perfectly competitive market in which contracts are signed before all information about workers' qualities is known. We show that the wage distribution in such a market is compressed and the total wage bill is lower than in a perfectly competitive market that operates after all information is known. We also show that the uncertainty about worker quality may cause a greater decrease in the aggregate worker surplus than the impersonal wage offers of a centralized match. The second essay is "Falling Through the Cracks". We present two different models which show that when there is insufficient time for colleges to make offers and students to review these offers, that the resulting match is not only inefficient but that it is possible for a student whose quality first order stochastically dominates another student's quality to be matched less frequently. Market congestion causes this student to "fall through the cracks" of the market. Market interventions that improve the efficiency of the congested market and ameliorate the problem of falling through the cracks are considered.

The third essay is "Terrorism and U.S. Foreign Aid". This paper studies the impact of U.S. foreign aid on anti-U.S. terrorism. We outline models of how U.S. foreign aid disbursements may either deter anti-U.S. terrorism attacks or provoke them. To resolve the theoretical ambiguity, we study the question empirically. Using Tobit regressions with yearly panel data, five-year average panel data, ten-year average panel data, and cross-section data we find that U.S. foreign aid increases anti-U.S. terrorism. The effect is small, but statistically significant. We perform several robustness checks of our result and discuss possible caveats and extensions.