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Elections, Contracts and Markets

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  • Gersbach, Hans
  • Muller, Markus

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.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5717.

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Date of creation: Jun 2006
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Handle: RePEc:cpr:ceprdp:5717

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

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References

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  1. Hans Gersbach & Maik T. Schneider, 2009. "Tax Contracts and Elections," CER-ETH Economics working paper series 09/123, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  2. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Discussion Papers 03-025, Stanford Institute for Economic Policy Research.
  3. Eric Maskin, 2003. "The Politician and the Judge: Accountability in Government," Theory workshop papers 505798000000000076, UCLA Department of Economics.
  4. David Romer, 1997. "Misconceptions and Political Outcomes," NBER Working Papers 6117, National Bureau of Economic Research, Inc.
  5. Hans Gersbach & Verena Liessem, 2008. "Reelection threshold contracts in politics," Social Choice and Welfare, Springer, vol. 31(2), pages 233-255, August.
  6. Berlemann, Michael & Schmidt, Carsten, 2001. "Predictive accuracy of political stock markets: Empirical evidence from a European perspective," SFB 373 Discussion Papers 2001,57, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  7. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39, July.
  8. repec:reg:rpubli:259 is not listed on IDEAS
  9. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  10. repec:reg:wpaper:259 is not listed on IDEAS
  11. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1997. "Separation of Powers and Political Accountability," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1163-1202, November.
  12. Hahn, Volker, 2009. "Reciprocity and voting," Games and Economic Behavior, Elsevier, vol. 67(2), pages 467-480, November.
  13. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
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Citations

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Cited by:
  1. Hans Gersbach & Markus Müller, 2011. "Information Markets, Elections and Contracts," CESifo Working Paper Series 3327, CESifo Group Munich.
  2. Hans Gersbach & Verena Liessem, 2008. "Reelection threshold contracts in politics," Social Choice and Welfare, Springer, vol. 31(2), pages 233-255, August.
  3. Russell H. Hillberry & Edward J. Balistreri & Thomas F. Rutherford, 2007. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," DEGIT Conference Papers c012_038, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Gersbach, Hans, 2007. "Vote-share Contracts and Democracy," CEPR Discussion Papers 6497, C.E.P.R. Discussion Papers.
  5. Hans Gersbach, 2007. "Anreize für Weitsicht und Wiederwahlschwellen: Wege zur besseren Demokratie," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 8(4), pages 389-397, November.
  6. Markus Müller, 2009. "Vote-Share Contracts and Learning-by-Doing," CER-ETH Economics working paper series 09/114, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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