Political short-termism obtains when a politician provides a public good that gives an immediate payoff while it would be optimal for the society that he provided a public good that gives a payoff only in the future. We consider a simple two-period political agency model and study whether reelection concern may give rise to political short-termism when voters are rational. We show that this can indeed be the case when politicians differ in their motivation and are better informed than the citizens: good politicians may (suboptimally) provide a public good that gives an immediate payoff because if they provided a public good that gives a payoff only in the second term, the citizens would consider it sufficiently likely that they are bad politicians and would therefore choose not to reelect them. Reelection concern may therefore reduce social welfare because of the undisciplining effect on the good politicians. Quite surprisingly, short-termism may however also be optimal for the society, because it gives rise to two additional effects on social welfare: (i) it increases the probability that in the future the office will be held by better politicians (selection effect) and (ii) bad politicians may choose to act more in line with the society's interest in order to be reelected (disciplining effect).
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Find related papers by JEL classification: D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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