Vote-Share Contracts and Learning-by-Doing
CER-ETH - Center of Economic Research at ETH Zurich, Working Paper No. 09/114
44 Pages Posted: 18 Jul 2009
Date Written: July 2009
Abstract
We examine the interaction between vote-share contracts and learning-by-doing. Candidates for a political office are allowed to offer vote-share thresholds. The elected politician has to achieve at least this threshold value in his reelection result to remain in office for a second term. We assume there are learning by-doing effects for incumbents and show that competition leads to vote-share contracts implementing the socially optimal threshold, which is above one-half. Vote-share contracts improve the average ability level of a reelected politician and increase effort in the first term of an incumbent. On the other hand, vote-share contracts reduce the probability that learning-by-doing takes place. However, the overall effect of vote-share contracts is welfare-enhancing, even under the assumption of learning-by-doing.
Keywords: elections, political contracts, vote-share thresholds, learning-bydoing effects, incumbency advantage
JEL Classification: D7, D82, H4
Suggested Citation: Suggested Citation
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