Incentive Pay for Policy-makers?

60 Pages Posted: 4 Jan 2019

See all articles by Volker Britz

Volker Britz

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Afsoon Ebrahimi

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

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)

Date Written: December 2018

Abstract

We study how to efficiently motivate policy-makers to solve political multitask problems. Political multi-task problems typically have outcomes that are difficult to measure. Moreover, there are conflicts among citizens about optimal policies and the agents have the power to tax the citizens to invest in better outcomes of some tasks. We develop a political agency model with two tasks and only one measurable outcome. In such an environment, policy-makers choose socially inefficient public good levels and expropriate minorities. A judicious combination of constitutional limits on taxation and incentive pay for policy-makers is second-best. Incentive pay is conditional on the public good level.

Keywords: incentive contracts, politicians, multi-task problems

JEL Classification: D72, D82

Suggested Citation

Britz, Volker and Ebrahimi, Afsoon and Gersbach, Hans, Incentive Pay for Policy-makers? (December 2018). Available at SSRN: https://ssrn.com/abstract=3304727 or http://dx.doi.org/10.2139/ssrn.3304727

Volker Britz (Contact Author)

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

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Afsoon Ebrahimi

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

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Hans Gersbach

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

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