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Competition of Politicians for Incentive Contracts and Elections

  • Hans Gersbach

When politicians have lower discount factors than voters, democratic elections cannot sufficiently motivate politicians to undertake long-term socially beneficial projects. When politicians can offer incentive contracts which become effective upon reelection, the hierarchy of contracts and elections can alleviate such inefficient decision-making in politics. This mechanism still works if the public cannot commit itself to a reelection scheme or if the public is unsure about the politicians’ time preferences. In the non-commitment case, incentive contracts may need to include a golden parachute clause.Keywords: Incentive contracts, politicians, long-term policies, elections and contracts, golden parachute clause

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 406.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_406
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