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Unraveling Short- and Farsightedness in Politics

  • Gersbach, Hans
  • Ponta, Oriana

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 and a fixed pension scheme. In the flexible pension scheme, the pension increases with short-term performance, using the vote share of the officeholder's party in the next election as an indicator. Self-selection yields welfare optimality as officeholders are encouraged to invest in those activities that benefit society most. We analyze the properties and consequences of such a system. 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9314.

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Date of creation: Jan 2013
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Handle: RePEc:cpr:ceprdp:9314
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  1. Gagliarducci, Stefano & Nannicini, Tommaso, 2009. "Do Better Paid Politicians Perform Better? Disentangling Incentives from Selection," IZA Discussion Papers 4400, Institute for the Study of Labor (IZA).
  2. Michael Smart & Daniel M. Sturm, 2006. "Term Limits and Electoral Accountability," CEP Discussion Papers dp0770, Centre for Economic Performance, LSE.
  3. 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.
  4. Gersbach, Hans, 2008. "Contractual Democracy," CEPR Discussion Papers 6763, C.E.P.R. Discussion Papers.
  5. Gersbach, Hans, 2004. "The Paradox of Competence," CEPR Discussion Papers 4362, C.E.P.R. Discussion Papers.
  6. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.
  7. 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.
  8. Hans Gersbach & Markus Müller, 2010. "Flexible pensions for politicians," Public Choice, Springer, vol. 145(1), pages 103-124, October.
  9. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  10. 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.
  11. repec:reg:rpubli:259 is not listed on IDEAS
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