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Unraveling Short- and Farsightedness in Politics

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Abstract

The 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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Paper 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.

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Length: 43 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:eth:wpswif:12-158

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Keywords: elections; political contracts; vote-share thresholds; incumbents; selection; effort;

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  1. Stefano Gagliarducci & Tommaso Nannicini, 2013. "Do Better Paid Politicians Perform Better? Disentangling Incentives From Selection," Journal of the European Economic Association, European Economic Association, vol. 11(2), pages 369-398, 04.
  2. Alesina, Alberto & Spear, Stephen E., 1988. "An overlapping generations model of electoral competition," Journal of Public Economics, Elsevier, vol. 37(3), pages 359-379, December.
  3. repec:reg:rpubli:259 is not listed on IDEAS
  4. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Discussion Papers 03-025, Stanford Institute for Economic Policy Research.
  5. repec:wop:humbsf:2001-57 is not listed on IDEAS
  6. Smart, Michael & Sturm, Daniel M., 2013. "Term limits and electoral accountability," Journal of Public Economics, Elsevier, vol. 107(C), pages 93-102.
  7. 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.
  8. Gersbach, Hans & Kleinschmidt, Tobias, 2009. "Power to youth: Designing democracy for long-term well-being," Mathematical Social Sciences, Elsevier, vol. 58(2), pages 158-172, September.
  9. Gersbach, Hans, 2004. "The Paradox of Competence," CEPR Discussion Papers 4362, C.E.P.R. Discussion Papers.
  10. Gersbach Hans, 2012. "Contractual Democracy," Review of Law & Economics, De Gruyter, vol. 8(3), pages 823-851, December.
  11. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  12. Hans Gersbach & Markus Müller, 2010. "Flexible pensions for politicians," Public Choice, Springer, vol. 145(1), pages 103-124, October.
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