In this dissertation, the first two chapters on mortgage markets show that statistical discrimination and market power derived by lenders from mortgage search costs of borrowers in the US have a large welfare cost for a borrower and are important sources of refinancing inaction. The third chapter shows that a winner-take-all electoral system is better than a proportional system for economic growth-enhancing public investment since it reduces the likelihood and size of coalition governments. Chapter 1 investigates how statistical discrimination by lenders, a tool that separates borrowers who differ in search intensity, affects welfare and monetary policy transmission to consumption. A general equilibrium model with two types of borrowers who differ in the number of lenders they meet is built and calibrated. Statistical discrimination carries a significant welfare cost for a borrower, accounting for two-thirds of the difference in welfare between the two types. Two ways of increasing mortgage search, an explicit goal of the CFPB, have opposite effects on welfare. Statistical discrimination halves non-shoppers’ consumption response to a monetary policy shock but does not increase shoppers’ response. Chapter 2 explores the role of search costs in explaining refinancing inaction, focusing on the 2009-2015 period when mortgage rates declined significantly. A dynamic discrete choice model of refinancing and search decisions is estimated using a proprietary panel data set. Search costs significantly inhibit refinancing through two channels. First, higher search costs directly increase refinancing cost. Second, they also indirectly increase market power of lenders, raising the offered rates. The indirect market power effect dominates. A centralized refinance market can significantly increase refinancing activities by eliminating market power, even if the refinancing costs remain unchanged. Chapter 3 finds that during an election cycle, public investment is concave in months to election and reduces in the share of coalition partners in government and the perceived government corruption level. To explain these facts, a model of coalition governments is built which adds endogenous early elections to models of political competition. Away from elections, coalition governments invest less to avoid an early election. As election approaches, even strong governments invest less to signal honesty.