Elections, Contracts and Markets

CER-ETH - Center of Economic Research at ETH Zurich, Working Paper No. 06/56

46 Pages Posted: 29 Nov 2006

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)

Markus Müller

ETH Zürich - Center for Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: October 2006

Abstract

As the performance of long-term projects is not observable in the short run politicians may pander to public opinion. To solve this problem, we propose a triple mechanism involving political information markets, reelection threshold contracts, and democratic elections. An information market is used to predict the long-term performance of a policy, while threshold contracts stipulate a price level on the political information market that a politician must reach to have the right to stand for reelection. Reelection thresholds are offered by politicians during campaigns. We show that, on balance, the triple mechanism increases social welfare.

Keywords: elections, threshold contracts, democracy, information markets, triple mechanism

JEL Classification: D72, D82

Suggested Citation

Gersbach, Hans and Müller, Markus, Elections, Contracts and Markets (October 2006). CER-ETH - Center of Economic Research at ETH Zurich, Working Paper No. 06/56. Available at SSRN: https://ssrn.com/abstract=947818 or http://dx.doi.org/10.2139/ssrn.947818

Hans Gersbach (Contact Author)

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

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Zurich, 8092
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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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Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Markus Müller

ETH Zürich - Center for Economic Research ( email )

Zürichbergstrasse 18
Zurich 8092
Switzerland

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