Competition of Politicians for Incentive Contracts and Elections

23 Pages Posted: 21 Mar 2001

See all articles by Hans Gersbach

Hans Gersbach

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

Date Written: May 2002

Abstract

When politicians are short-term oriented or future elections do not sufficiently reflect the success of past policies, democratic elections cannot motivate politicians to undertake long-term socially beneficial projects. When politicians can offer incentive contracts which become effective upon reelection, the hierarchy of contracts and elections can alleviate such inefficient decision-making in politics. This mechanism still works if the public cannot commit itself to a reelection scheme or if the public is unsure about the politicians' time preferences. In the non-commitment case, incentive contracts may need to include a golden parachute clause.

Keywords: Incentive Contracts, Politicians, Long-term Policies, Elections and Contracts, Golden Parachute Clause

JEL Classification: D72, D82

Suggested Citation

Gersbach, Hans, Competition of Politicians for Incentive Contracts and Elections (May 2002). Available at SSRN: https://ssrn.com/abstract=263114 or http://dx.doi.org/10.2139/ssrn.263114

Hans Gersbach (Contact Author)

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

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IZA Institute of Labor Economics

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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