Electoral incentives, institutions and rent-seeking
Purpose - The purpose of this paper is to investigate conditions under which voters’ comparison of relative performance between adjacent jurisdictions can help reduce rent-seeking by politicians. Design/methodology/approach - A theoretical model was developed to examine the effectiveness of yardstick competition in restraining political corruption, first under a static setting, and then under a dynamic setting, using optimal control theory and differential games. It is assumed that voters compare the performance of their incumbent government with that of a neighboring jurisdiction. The incumbent can provide a public good and extract rent, which are financed by imposing a distortionary tax on the population. Politicians derive utility from rent as well as from popularity. The stock of reputation builds up or decays over time. Reputation is decreasing in rent appropriation. Findings - Without assigning an Originality/value - This paper offers the first formal analysis, using differential games, of the role of the interaction between electoral considerations and neighborhood demonstration effects (with respect to relative rent extraction) in determining a politician's optimal rent-seeking behaviour.
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Volume (Year): 1 (2008)
Issue (Month): 2 (September)
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