Unraveling Short- and Farsightedness in Politics

Hans Gersbach and Oriana Ponta

No 9314, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: 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.

Keywords: Effort; Elections; Incumbents; Political contracts; Selection; Vote share thresholds (search for similar items in EconPapers)
JEL-codes: D7 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-age and nep-pol
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Related works:
Journal Article: Unraveling short- and farsightedness in politics (2017)
Working Paper: Unraveling Short- and Farsightedness in Politics (2012)
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