17 Pages Posted: 26 Feb 2015
Date Written: February 24, 2015
Incumbent politicians may worry about their chances of re-election. Re-election concerns may induce incumbents to write contracts that have low power incentives (LPI) instead of high power incentives (HPI). This may result in inefficient outcomes in cases where high power incentives are desirable. The purpose of this research is to model the incumbent’s decision to choose between contracts of high or low powered incentives, and derive conditions under which the incumbent will favor LPI over HPI, even if HPI is more efficient. The model builds directly off of an earlier model developed by Coate and Morris (1995).
Keywords: contracts, government provision, elections, incentives
JEL Classification: D72, H42, L33
Suggested Citation: Suggested Citation