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Gersbach, Hans
Year of Publication: 
Series/Report no.: 
CESifo Working Paper No. 406
When politicians have lower discount factors than voters, democratic elections cannot sufficiently motivate politicians to undertake long-term socially beneficial projects. When politicians can offer incentive contracts which become effective upon reelection, the hierarchy of contracts and elections can alleviate such inefficient decision-making in politics. This mechanism still works if the public cannot commit itself to a reelection scheme or if the public is unsure about the politicians' time preferences. In the non-commitment case, incentive contracts may need to include a golden parachute clause.Keywords: Incentive contracts, politicians, long-term policies, elections and contracts, golden parachute clause
Incentive contracts
long-term policies
elections and contracts
golden parachute clause
Document Type: 
Working Paper

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