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Elections, Contracts and Markets

  • Gersbach, Hans
  • Müller, Markus

As the performance of long-term projects is not observable in the short run politicians may pander to public opinion. To solve this problem, we propose a triple mechanism involving political information markets, reelection threshold contracts, and democratic elections. An information market is used to predict the long-term performance of a policy, while threshold contracts stipulate a price level on the political information market that a politician must reach to have the right to stand for reelection. Reelection thresholds are offered by politicians during campaigns. We show that, on balance, the triple mechanism increases social welfare.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5717.

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Date of creation: Jun 2006
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Handle: RePEc:cpr:ceprdp:5717
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  1. Gersbach, Hans & Liessem, Verena, 2005. "Re-election Threshold Contracts in Politics," CEPR Discussion Papers 5175, C.E.P.R. Discussion Papers.
  2. Gersbach, Hans & Schneider, Maik, 2012. "Tax Contracts and Elections," CEPR Discussion Papers 9054, C.E.P.R. Discussion Papers.
  3. 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.
  4. Eric Maskin, 2003. "The Politician and the Judge: Accountability in Government," Theory workshop papers 505798000000000076, UCLA Department of Economics.
  5. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," NBER Working Papers 10504, National Bureau of Economic Research, Inc.
  6. David Romer, 2003. "Misconceptions and Political Outcomes," Economic Journal, Royal Economic Society, vol. 113(484), pages 1-20, January.
  7. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1997. "Separation of Powers and Political Accountability," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1163-1202, November.
  8. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39, March.
  9. repec:reg:rpubli:259 is not listed on IDEAS
  10. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
  11. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  12. Hahn, Volker, 2009. "Reciprocity and voting," Games and Economic Behavior, Elsevier, vol. 67(2), pages 467-480, November.
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