Unraveling Short- and Farsightedness in Politics

43 Pages Posted: 15 Mar 2012

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Oriana Ponta

ZHAW School of Management and Law

Multiple version iconThere are 2 versions of this paper

Date Written: March 2, 2012

Abstract

The absence of the deselection threat in incumbents’ last term in office can be negative or positive for society. Some politicians may reduce their efforts, while others may pursue beneficial long-term policies that may be unpopular in the short term. We propose a novel pension system that solves the effort problem while preserving willingness to implement long-term policies. The idea is to give politicians the option to choose between a flexible pension scheme and a fixed pension scheme. In a flexible pension scheme, the pension increases with short term performance as measured by the vote share of the officeholder’s party in the next election. This system increases social welfare by letting officeholders self-select into those activities that most benefit society. We analyze the properties and consequences of such a system and assess its robustness. Finally, we extend the pension system with choice to non-last-term situations and derive a general welfare result.

Keywords: elections, political contracts, vote-share thresholds, incumbents, selection, effort

JEL Classification: D7

Suggested Citation

Gersbach, Hans and Ponta, Oriana, Unraveling Short- and Farsightedness in Politics (March 2, 2012). Available at SSRN: https://ssrn.com/abstract=2014769 or http://dx.doi.org/10.2139/ssrn.2014769

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Oriana Ponta

ZHAW School of Management and Law ( email )

St.-Georgen-Platz 2
Winterthur, 8401
Switzerland

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