Two essays compose the dissertation. The first essay entitled "Membership in Citizen Groups" (joint with Stefano Barbieri) addresses the coordination problem individuals face when deciding whether to pay a membership fee and join an association that provides a pure public good and selective benefits to its members. The coordination problem arises because the ability of the association to fulfill its purposes depends on the size of its membership. We formulate this problem as a global game and show that in the unique equilibrium a positive measure of people joins. A unique equilibrium with positive membership also obtains when agents are heterogeneous with respect to the utility they derive from membership. We show that a mean preserving spread in the distribution of membership valuations decreases the equilibrium membership size. We extend our analysis to a two-period setting where seniority of membership entails additional benefits. We provide conditions under which a unique equilibrium that exhibits persistence in membership exists. We show that the presence of seniority benefits increases the equilibrium size of the group in both periods. Our results are consistent with several empirical observations regarding membership in large citizen associations. The second essay entitled "Policy Uncertainty, Electoral Securities and Redistribution" investigates how uncertainty about the adoption of a redistribution policy affects political support for redistribution when individuals can trade policy contingent securities in the stock market. We show that the demand for redistribution is always smaller than in the case where no insurance is available. In equilibrium, relatively poor individuals receive private transfers from the rich through the market, and oppose a public redistribution policy that they would otherwise have supported. Consistent with the empirical evidence, the model predicts that in economies with well-developed financial markets the level of redistribution decreases with the level of participation in these markets and with income inequality. Moreover, the existence of a large policy insurance market increases future expected inequality even if a majority of individuals are redistributing resources through private transfers. We show that existing stocks currently traded on the U.S. stock market can be used to hedge policy risk.
