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Incentive Contracts and Elections for Politicians with Multi-Task Problems

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Listed author(s):
  • Gersbach, Hans
  • Liessem, Verena

Abstract

We consider a model with a politician facing a multi-task problem while in office. The re-election mechanism distorts the allocation of effort in favour of tasks whose outcomes can be measured more precisely than others. We show that a combination of elections and incentive contracts can alleviate this inefficiency. The incentive contract does not require information about the performance of the politician and is self-financing across terms.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4075.

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Date of creation: Oct 2003
Handle: RePEc:cpr:ceprdp:4075
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Keywords: elections; incentive contracts; multi-task problems;

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Find related papers by JEL classification:
  • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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  1. Lockwood, Ben, 1997. "State-Contingent Inflation Contracts and Unemployment Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 286-299, August.
  2. Tabellini, Guido & Alesina, Alberto, 1990. "Voting on the Budget Deficit," American Economic Review, American Economic Association, vol. 80(1), pages 37-49, March.
  3. Di Tella, Rafael & Fisman, Raymond, 2004. "Are Politicians Really Paid Like Bureaucrats?," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 477-513, October.
  4. Daniel Diermeier & Michael Keane & Antonio Merlo, 2005. "A Political Economy Model of Congressional Careers," American Economic Review, American Economic Association, vol. 95(1), pages 347-373, March.
  5. Glazer, Amihai, 1989. "Politics and the Choice of Durability," American Economic Review, American Economic Association, vol. 79(5), pages 1207-1213, December.
  6. Torsten Persson & Lars E. O. Svensson, 1989. "Why a Stubborn Conservative would Run a Deficit: Policy with Time-Inconsistent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 325-345.
  7. Besley, Timothy & Coate, Stephen, 1998. "Sources of Inefficiency in a Representative Democracy: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 88(1), pages 139-156, March.
  8. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  9. Gersbach, Hans & Schneider, Maik T., 2012. "Tax contracts and elections," European Economic Review, Elsevier, vol. 56(7), pages 1461-1479.
  10. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-769, August.
  11. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  12. Eric Maskin & Jean Tirole, 2004. "The Politician and the Judge: Accountability in Government," American Economic Review, American Economic Association, vol. 94(4), pages 1034-1054, September.
  13. Torsten Persson & Gérard Roland & Guido Tabellini, 1997. "Separation of Powers and Political Accountability," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1163-1202.
  14. Jensen, Henrik, 1997. "Credibility of Optimal Monetary Delegation," American Economic Review, American Economic Association, vol. 87(5), pages 911-920, December.
  15. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
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Cited by:

  1. Hans Gersbach, 2007. "Anreize für Weitsicht und Wiederwahlschwellen: Wege zur besseren Demokratie," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 8(4), pages 389-397, November.
  2. Hans Gersbach, 2009. "Competition of politicians for wages and office," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 33(1), pages 51-71, June.
  3. Hans Gersbach & Verena Liessem, 2008. "Reelection threshold contracts in politics," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 31(2), pages 233-255, August.
  4. Neunzig, Alexander R., 2002. "Mehraufgaben-Prinzipal-Agenten-Analyse: Effiziente Arbeitsverträge für abwechslungsbegrüßende Arbeitnehmer," CSLE Discussion Paper Series 2002-04, Saarland University, CSLE - Center for the Study of Law and Economics.
  5. Hans Gersbach, 2004. "Competition of Politicians for Incentive Contracts and Elections," Public Choice, Springer, vol. 121(1), pages 157-177, October.
  6. Markus Müller, 2007. "Motivation of politicians and long-term policies," Public Choice, Springer, vol. 132(3), pages 273-289, September.
  7. Ben Lockwood & Francesco Porcelli, 2013. "Incentive Schemes for Local Government: Theory and Evidence from Comprehensive Performance Assessment in England," American Economic Journal: Economic Policy, American Economic Association, vol. 5(3), pages 254-286, August.
  8. Timothy Besley, 2004. "Joseph Schumpeter Lecture: Paying Politicians: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 193-215, 04/05.
  9. Gersbach Hans, 2012. "Contractual Democracy," Review of Law & Economics, De Gruyter, vol. 8(3), pages 823-851, December.
  10. Hamami, Tom, 2015. "Multiple tasks and political organization," Economics Letters, Elsevier, vol. 128(C), pages 48-50.

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