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 pension scheme and a fixed pension scheme. In a flexible pension scheme, the pension increases with short term performance as measured by the vote share of the officeholder’s party in the next election. This system increases social welfare by letting officeholders self-select into those activities that most benefit society. We analyze the properties and consequences of such a system and assess its robustness. 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 CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 12/158.
Length: 43 pages
Date of creation: Feb 2012
Date of revision:
elections; political contracts; vote-share thresholds; incumbents; selection; effort;
Other versions of this item:
- D7 - Microeconomics - - Analysis of Collective Decision-Making
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-03-08 (Economics of Ageing)
- NEP-ALL-2012-03-08 (All new papers)
- NEP-CDM-2012-03-08 (Collective Decision-Making)
- NEP-POL-2012-03-08 (Positive Political Economics)
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