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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. Michael Smart & Daniel M. Sturm, 2006. "Term limits and electoral accountability," LSE Research Online Documents on Economics 19771, London School of Economics and Political Science, LSE Library.
  2. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.
  3. Gersbach Hans, 2012. "Contractual Democracy," Review of Law & Economics, De Gruyter, vol. 8(3), pages 823-851, December.
  4. 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.
  5. repec:reg:rpubli:259 is not listed on IDEAS
  6. Hans Gersbach & Markus Müller, 2010. "Flexible pensions for politicians," Public Choice, Springer, vol. 145(1), pages 103-124, October.
  7. Alberto Alesina & Stephen E. Spear, 1987. "An Overlapping Generations Model of Electoral Competition," NBER Working Papers 2354, National Bureau of Economic Research, Inc.
  8. 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.
  9. Tim Besley & Stephen Coate, . "An Economic Model of Representative Democracy," Penn CARESS Working Papers ecf70d639d700dba5327ab0c8, Penn Economics Department.
  10. 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.
  11. Gersbach, Hans, 2004. "The Paradox of Competence," CEPR Discussion Papers 4362, C.E.P.R. Discussion Papers.
  12. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  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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