Gresham's law in politics: Why are politicians not the most remarkable men for probity and punctuality?
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Economists have always criticized politicians' behaviour. Adam Smith called politicians “crafty and insidious"; and, more recently Brennan and Buchanan have applied Gresham's law to politics, arguing that the man for whom the expected profit is highest will be the highest bidder for political power. However in their model there is not an argument to explain why these people are elected to public offices.
This paper presents a supply model and a demand model explaining why politicians behave as “wicked" men, and are elected by the citizens. Firstly, we develop a model of repetitive and reputation games that shows why probity is not important for many politicians. The second model employs asymmetric information theory to explain why voters elect “wicked" people even if probity is a highly estimated value for them. The paper ends with some suggestions of legal reforms for reducing this asymmetry of information.
KeywordsGresham law Political corruption Asymetry of information Reputation
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