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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
Date of revision:
Handle: RePEc:cpr:ceprdp:9314
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  1. Alesina, Alberto & Spear, Stephen, 1988. "An Overlapping Generations Model of Electoral Competition," Scholarly Articles 4553015, Harvard University Department of Economics.
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  3. Stefano Gagliarducci & Tommaso Nannicini, 2010. "Do Better Paid Politicians Perform Better? Disentangling Incentives from Selection," CEIS Research Paper 162, Tor Vergata University, CEIS, revised 28 May 2010.
  4. 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.
  5. Berlemann, Michael & Schmidt, Carsten, 2001. "Predictive accuracy of political stock markets: Empirical evidence from an European perspective," Dresden Discussion Paper Series in Economics 05/01, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  6. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  7. Wolfers, Justin & Zitzewitz, Eric, 2004. "Prediction Markets," Research Papers 1854, Stanford University, Graduate School of Business.
  8. Tim Besley & Stephen Coate, . ""An Economic Model of Representative Democracy''," CARESS Working Papres 95-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  9. Smart, Michael & Sturm, Daniel M, 2004. "Term Limits and Electoral Accountability," CEPR Discussion Papers 4272, C.E.P.R. Discussion Papers.
  10. Gersbach, Hans, 2008. "Contractual Democracy," CEPR Discussion Papers 6763, C.E.P.R. Discussion Papers.
  11. Gersbach, Hans, 2004. "The Paradox of Competence," CEPR Discussion Papers 4362, C.E.P.R. Discussion Papers.
  12. Hans Gersbach & Markus Müller, 2010. "Flexible pensions for politicians," Public Choice, Springer, vol. 145(1), pages 103-124, October.
  13. Peter A. Morris, 1983. "An Axiomatic Approach to Expert Resolution," Management Science, INFORMS, vol. 29(1), pages 24-32, January.
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