Elections, Contracts and Markets

Hans Gersbach and Markus Müller ()
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Markus Müller: Center of Economic Research (CER-ETH), ETH Zurich

No 06/56, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: 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.

Keywords: elections; threshold contracts; democracy; information markets; triple mechanism (search for similar items in EconPapers)
JEL-codes: D72 D82 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2006-05
New Economics Papers: this item is included in nep-cdm and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Elections, Contracts and Markets (2006)
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