This dissertation consists of three essays on economic development in the context of South Asia. In the first essay, I study how power outages impact large scale manufacturing firms. First, I use monthly electricity billing data from large scale manufacturing firms in Pakistan to characterize how these firms respond to interruptions in electricity supply. I show that firms differentially adjust on-grid capacity utilization based on their sensitivities to increases in fuel costs. Next, I incorporate the empirical results into a dynamic model of utilization adjustment and self-generation in response to power outages and estimate structural cost parameters. Finally, I use my estimates to determine the magnitude of cost increases that firms incur. My results suggest that between January 2010 to March 2012, no firm in my sample had a cost increase above 1%. During quarters of high numbers of outages, the cost increases for most firms is below 3%. In my sample, firms in the chemical and textile industries are impacted by power outages more than firms, of similar size, in other industries.

In the second essay, I examine the impact of power outages on the likelihood of manu- facturing firm exit. Again, I use proprietary electricity billing data for manufacturing firms in Pakistan to determine the month of exit and merge this with monthly outage data during the period 2009-2012. I find that power outages disproportionately increase the exit proba- bility of small firms (both in the formal and informal sector). For each 100 hours of power outages, the probability of small firm exit increases by over 6%. This result is consistent with existing evidence on the impact of power disruption on various measures of firm health as well as research on the cost impact of outages on large scale manufacturing and suggests that policies which target small firms are more likely to alleviate the detrimental effects of power disruption.

In the third essay, I study how religious holidays impact the incidence of violence between Hindus and Muslims in India and I analyze how violence impacts vote share. By exploiting variation in the timing of religious holidays - because Hindu and Muslim holidays follow Sanskrit and Lunar calendars, respectively - I show that religious holidays and the interaction of Hindu and Muslim holidays positively affect the incidence of violence. Next, I consider the usefulness of violence by studying the electoral effects of violence on vote share. I find that violence before an election is associated with electoral gains.

Living standards were constant for thousands of years before the industrial revolution. Malthus explained it this way: population grows faster when living standards rise; therefore, changes in technology alter the density of population but not the average welfare. This paper challenges Malthus's explanation and replaces it with the theory of group selection.

Malthusian theory is inadequate because it ignores that a dollar's worth of diamonds contributes less to survival and reproduction than a dollar's worth of grain. Grain is a subsistence commodity and a diamond is a surplus commodity. The Malthusian force anchors the average level of subsistence, but not that of surplus. If the surplus sector had grown faster than the subsistence sector, then living standards could have grown steadily before the industrial revolution, but they did not. The constancy of living standards thus implies that growth was balanced between subsistence and surplus, something Malthus did not explain.

To explain the balanced growth, I propose the theory of group selection. Selection of group characteristics---culture and technology---occurs by migration and conquests. Since living standards rise with the ratio of surplus to subsistence, migrants and invaders usually move from places relatively rich in subsistence to those relatively rich in surplus. They spread the culture and technology of the subsistence-rich origin to the surplus-rich destination; the bias of migration favors the spread of subsistence over that of surplus. Even if surplus cultures and technologies would develop faster than subsistence ones in a local environment, the offsetting biased migration balances the sectors on a global scale. This explains the constancy of living standards.

The theory explains why living standards stagnated, how the Industrial Revolution occurred and where the prosperity of Roman Empire and Song Dynasty came from.

The theory is robust as it shows that a tiny bit of biased migration has a large impact on the evolution of living standards. Even if people are slow to move and reluctant to learn from the immigrants. The slow movement and reluctant learning expand the variation across the regions, which compensates the effect of selection. The compensating ``variation effect" explains why selection is so strong a pressure on economic growth that the Malthusian trap lasted for so long. It also provides a new tipping-point mechanism for understanding revolutionary changes.

By challenging Malthus, the theory throws doubt on the conventional explanations of the escape of Malthusian trap and the onset of modern economic growth. The puzzle is why the modern growth-friendly institutions failed to be established and spread long before the modern era. To explain it, I propose the theory of infant institution. The fittest institution may fail to survive. An institution that raises the growth rate but lowers the level of fitness of a group will be suppressed for an extremely long time when group competition is intense. But in due course of time, the good institution will suddenly spread wide and fast, as one of the regions survives the level handicap long enough to have fully realized its growth potential. This tipping-point pattern explains why the growth-friendly institutions had been long suppressed in the ancient time before they suddenly burst into dominance in the modern era.

In the following three essays, I explore how organized political interests behave, interact with each other, and affect public policies. As special interest groups in the United States have proliferated both in number and size over the past several decades, policymakers have responded with a mixture of public consternation and private acceptance. American voters overwhelmingly disapprove of the activities of special interest groups, but observers have been unable to articulate convincingly the effects of these activities on legislative practices and social welfare. I fill in this gap.

In my first essay, I consider the effects in Congress of competition between interest groups over public policy. I model the interactions of rival interest groups and legislators as a dual form of competition over both the substance of legislation -- that is, the legislative agenda -- and legislators' votes on legislation. This is, at it's heart, a model of congressional committee behavior. The unique prediction of this model is that interest groups may intentionally spend money to have legislation introduced that is known to have no prospect of being passed. Such interest groups are motivated by the inability to shape policy in a more favorable direction and the desire to protect a sufficiently palatable status quo. This result is attractive in light of the fact that roughly 90% of legislation fails passage. I then go on to provide empirical evidence in support of this prediction using an original, large and highly detailed dataset consisting of all pieces of legislation introduced into Congress over a twenty year period. I estimate that interest groups attempt to suppress roughly 56% of legislation that is introduced in the House of Representatives and 69% of legislation that is introduced into the Senate. Furthermore, I provide evidence that groups may suppress legislation by obfuscating the linguistic content of bills.

In my second essay, I consider the effects of competition within interest groups on the direction of redistributive policies. Individuals and firms form interest groups as a means of pooling resources and overcoming free riding in order to shape favorable public policies. However, the objectives of interest groups and their constituents do not perfectly align. In particular, interest groups tend to be more farsighted than their constituents. This asymmetry of objectives generates an agency problem that may manifest itself in the persistence of inefficient public policies. That is, interest groups may be directed by their relatively shortsighted constitutents to oppose efficient policy reforms. In the long run, this agency problem is exacerbated by the responses of interest groups to free riding. I provide suggestive econometric evidence from the United States in support of this argument.

In my third essay, I consider the implications of the very function of an interest groups: providing a means to aggregate the preferences of a motivated but potentially heterogeneous constituency. I begin by noting a very strong empirical regularity in lobbying activity in the United States. In nearly every industry, the distribution of lobbying expenditures follows a power law. This regularity is not predicted by standard models of interest group behavior. Instead, I provide a heuristic explanation for the empirical finding. If interest group expenditure decisions are made in response to periodic signals and are determined by a constituency that continuously updates its preferences according to a simple heuristic, then we should expect to see the distribution of lobbying expenditures follow a power law. I provide additional simulation evidence in support of this claim.

Chapter one develops a dynamic model to investigate the paradox of the Chinese state-society relations before and after the reform. By assuming that citizens and the government are both forward looking and protestors in the CCP regime have to pay the durable cost, the model generates several findings. First, the model identifies an increasing number of protests in a transition economy because the decentralized reform has induced such significant changes as the weakened central authority, released social control and increased distributable income. Second, a low level of social unrests is found in both stationary and non-stationary equilibrium in a central planning economy. Third, the model demonstrates the strong capability of a command economy in administrating economic crisis. Finally, the future tendency of the Chinese state-society relations depends on the re-strengthening of central authority and the techniques that the center will apply to respond the mass incidents.

Chapter two develops the Crowford and Sobel's cheap talk model (1982) and Hoff and Stiglitz's model of anarchy of demand for the rule of law (2004), and investigates the significance of peasants' rebellions on Chinese dynastic stability and the large variance in the duration of reign within the dynastic cycle. I contend that dynastic stability is determined by the initial land distribution and the center-local relationship in the Central Autocratic System. As the center cannot constrain the local corruption, the portion of peasant proprietors and thus dynastic stability has a tendency of decreasing over time. In addition, the patterns of dynastic longevity are shaped by the type of preceding wars before the dynasty was built.

Very few researches focus on the role of judicial system in determining the level of corruption. Employing a formal model with empirical analyses, Chapter three incorporate economic factors with political constraints to investigate the different roles of democracy and judicial independence in determining the level of bureaucrats' corruption across countries. Empirically, the instrumental variable (IV) approach is applied to resolve the endogeneity problems. The evidence indicates that different levels of corruption across countries are significantly influenced by the degrees of judicial independence. To fight corruption successfully, I contend that the judiciary, as a hard institutional constraint to resist bureaucratic corruption, has to be independent from the government.

This dissertation explores how to solve incentive problems in autocracies through institutional arrangements centered around political meritocracy. The question is fundamental, as merit-based rewards and promotion of politicians are the cornerstones of key authoritarian regimes such as China. Yet the grave dilemmas in bureaucratic governance are also well recognized. The three essays of the dissertation elaborate on the various solutions to these dilemmas, as well as problems associated with these solutions. Methodologically, the dissertation utilizes a combination of economic modeling, original data collection, and empirical analysis.

The first chapter investigates the puzzle why entrepreneurs invest actively in many autocracies where unconstrained politicians may heavily expropriate the entrepreneurs. With a game-theoretical model, I investigate how to constrain politicians through rotation of local politicians and meritocratic evaluation of politicians based on economic growth. The key finding is that, although rotation or merit-based evaluation alone actually makes the holdup problem even worse, it is exactly their combination that can form a credible constraint on politicians to solve the hold-up problem and thus encourages private investment. An extension of the model also demonstrates that rotation and merit-based evaluation reduces politicians' entrenched interests in existing firms. This allows new firms to enter the market, which sustains Schumpeterian "creative destruction" and long-term growth. In other words, the combination of rotation and merit-based evaluation achieves both commitment and strong flexibility, a property rarely satisfied by other commitment devices. Firm-level panel data from China are further consistent with the main predictions from my model.

The second chapter focuses on another critical dilemma in an autocracy, the loyalty-competence trade-off. An autocrat usually refuses to appoint a competent governor with a broad discretionary power because the governor can use his competence and discretion to challenge the autocrat. Through a game-theoretical model, I show that one-party state can potentially solve the dilemma by appointing both a party secretary and a governor to co-rule a province. The party secretary controls political power, while the governor commands the provision of the public good. The arrangement forestalls local attempts to challenge the autocrat and establishes the autocrat's confidence to promote meritocracy and decentralization. I also characterize the optimal party-government relationship: the secretary should sometimes dominate over the governor in public good provision but not always the case. This is very different from canonical theories on the separation of powers in a democracy. The model is motivated by the experience of China's party state, whose elements of meritocracy and dual leadership are modern incarnations of key institutions in Imperial China. From key historical records, I construct variables measuring political institutions over 1,300 years in Chinese history via textual analysis techniques. The statistical analysis uncovers a long-run correlation between meritocracy and dual leadership, showing the first order relevance of the theory.

In the first chapter, I show how a meritocratic government with strong bureaucratic rules can contribute to a thriving market economy. In the third chapter, I also look at the other direction: when and how private economy contributes to bureaucratic capacity. This helps answer the question why some regimes maintain a persistent meritocracy, while aristocrats capture others. I show that in an environment with weak property rights, a meritocratic government and a thriving private economy reinforce each other. This matches important historical episodes such as the ``Tang-Song Transition'' in Medieval China. In an extension, I also show that legal property rights sufficiently strong can eliminate multiple equilibria, and that stronger property rights cause a more dynastic government. The extended model is employed to illustrate the difference between meritocracies in Imperial China and Ottoman Empire. It also implies a causal relationship between comparative law and state building.