Unraveling Short- and Farsightedness in Politics
AbstractThe absence of the deselection threat in incumbents' last term in office can be negative or positive for society. Some politicians may reduce their efforts, while others may pursue beneficial long-term policies that may be unpopular in the short term. We propose a novel pension system that solves the effort problem while preserving willingness to implement long-term policies. The idea is to give politicians the option to choose between a flexible and a fixed pension scheme. In the flexible pension scheme, the pension increases with short-term performance, using the vote share of the officeholder's party in the next election as an indicator. Self-selection yields welfare optimality as officeholders are encouraged to invest in those activities that benefit society most. We analyze the properties and consequences of such a system. Finally, we extend the pension system with choice to non-last-term situations and derive a general welfare result.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9314.
Date of creation: Jan 2013
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- D7 - Microeconomics - - Analysis of Collective Decision-Making
This paper has been announced in the following NEP Reports:
- NEP-AGE-2013-04-13 (Economics of Ageing)
- NEP-ALL-2013-04-13 (All new papers)
- NEP-POL-2013-04-13 (Positive Political Economics)
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