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Introduction to Part I

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Redesigning Democracy

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Abstract

One might reason that political offices function like a private labor market and that a political office-holder is the voters’ employee. Every applicant for an open position advertises his ability to fill this position successfully. The prospective employer chooses the applicant that seems the most able and the best match, and after a pre-defined period, he assesses his employee’s performance and either keeps him or has him fired. The details of employee’s and employer’s rights and duties are put on record in a contract.

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Notes

  1. 1.

    A more detailed survey of the current state of affairs on Political Contracts can be found in Gersbach (2012).

  2. 2.

    In Germany, it could be the Federal President (see Gersbach and Schneider 2012b).

  3. 3.

    As they are certifiable and enforceable, they cannot be compared to the theoretical “social contract” that free men contract with each other to establish civil society, as analyzed in Hobbes’ Leviathan, for instance. A social contract can be implemented by a set of constitutional rules (see Aghion and Bolton 2003 and Gersbach 2009a, b).

  4. 4.

    See Gersbach (2012).

  5. 5.

    See Gersbach (2012).

  6. 6.

    The chances and drawbacks of contracts tying reelection to a certain performance threshold are analyzed thoroughly in Gersbach and Liessem (2008a, b).

  7. 7.

    For incentive schemes that can overcome this difficulty, see Gersbach and Müller (2010) and Gersbach and Ponta (2017).

  8. 8.

    The terms “reelection vote-share” and “reelection threshold” are used synonymously for this scheme, the result being the same. A Political Contract that stipulates a certain pre-defined vote-share for reelection is called a “Vote-share Contract”.

  9. 9.

    Alternatively, the public could set higher reelection thresholds.

  10. 10.

    See Gersbach (2012) for a detailed discussion on who should set the boundaries for material and immaterial rewards and punishments for office-holders.

  11. 11.

    Of course, this does not apply to all circumstances. In particular, statesmen may be willing to undertake policies that are unpopular in the current electorate (see Gersbach 1999).

  12. 12.

    See Gersbach and Kleinschmidt (2009) for details.

  13. 13.

    There is an important body of literature on incentive contracts for non-elected public authorities like central bankers, initiated by Walsh (1995a). The government imposes a penalty if it can verify that the central bank has not attempted to meet its target level. For the theory of the enforcement of such arrangements and the nature of penalties, see further Persson and Tabellini (1993), Walsh (1995b), Lockwood (1997), Svensson (1997), and Jensen (1997).

  14. 14.

    There is a voluminous conceptual (and even larger empirical) literature on the role of electoral accountability that can be traced back to Downs (1957) and the classic work of Barro (1973) and Ferejohn (1986) on how elections may punish poor performance of officials. Theoretical work that identifies the role of elections as a screening device for officials has been triggered by Banks and Sundaram (1993), Samuelson and Fearon (1999). A survey on the potential and limits of electoral accountability can be found in Asworth (2012). The role of finite versus infinite horizons for accountability is surveyed in Duggan and Martinelli (2015). Accountability through elected intermediaries is developed in Vlaicu and Whalley (2015).

  15. 15.

    Historically, contracts were used to limit the power of rulers. In the Middle Ages, specific contracts for rulers were a step for the development of constitutions or a mean to commit them to pursuing certain policies (see, e.g. Kleinheyer 1968, Vierhaus 1977, Pozza 1997 and Lottes 2000). Moreover, in ancient Athens, the officials were liable with their personal funds. In some cases, officials were even executed if the citizens’ assembly was not satisfied with their performance (see, e.g., Bleicken 1991).

  16. 16.

    With incomplete contracts, allocation of residual control rights—i.e. power—is central. This was examined, e.g., by Persson et al. (1997) and Persson and Tabellini (2000) to rationalize the separation of powers and of the checks and balances of various branches of government. We take an allocation of power as given and examine how Political Contracts can help mitigate abuse of power, and can foster the alignment of the politicians’ incentives with the voters’ interests.

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  1. Chair of Macroeconomics: Innovation and Policy, ETH Zürich, Zürich, Switzerland

    Hans Gersbach

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Gersbach, H. (2017). Introduction to Part I. In: Redesigning Democracy. Springer, Cham. https://doi.org/10.1007/978-3-319-53405-3_1

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