Skip to main content
SpringerLink
Log in

Flexible pensions for politicians

  • Published:
Public Choice Aims and scope Submit manuscript

Abstract

It may be difficult to motivate politicians in their last term. To solve this problem, we suggest a triple mechanism involving political information markets, flexible pensions, and democratic elections. An information market is used to predict the potential reelection chances of the politician. Pensions depend on the price in the information market and thereby motivate the politician to act in a socially optimal manner. We show that, on balance, the triple mechanism increases social welfare. Finally, we suggest several ways to avoid the manipulation of information markets and we discuss possible pitfalls of flexible pensions.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Alesina, A., & Spear, S. (1988). An overlapping generations model of electoral competition. Journal of Public Economics, 37, 359–379.

    Article  Google Scholar 

  • Baker, G. (1992). Incentive contracts and performance measurement. Journal of Political Economy, 100, 598–614.

    Article  Google Scholar 

  • Barro, R. (1973). The control of politicians: An economic model. Public Choice, 14, 19–42.

    Article  Google Scholar 

  • Becker, G., & Stigler, G. (1974). Law enforcement, malfeasance and the compensation of enforcers. Journal of Legal Studies, 1, 1–18.

    Article  Google Scholar 

  • Bender, B., & Lott, J. (1996). Legislator voting and shirking: A critical review of the literature. Public Choice, 87, 67–100.

    Article  Google Scholar 

  • Berg, J., Forsythe, R., & Rietz, T. (1996). What makes markets predict well? Evidence from the Iowa electronic markets. In Understanding strategic interaction: Essays in honor of Reinhard Selten. Berlin: Springer.

    Google Scholar 

  • Berlemann, M., & Schmidt, C. (2001). Predictive accuracy of political stock markets. Empirical evidence from a European perspective. Discussion Paper, Humboldt-University of Berlin.

  • Carey, J. (1994). Political shirking and the last term problem: Evidence for a party-administered pension system. Public Choice, 81, 1–22.

    Article  Google Scholar 

  • Fair, R. (1996). Econometrics and presidential elections. Journal of Economic Perspectives, 10(3), 89–102.

    Google Scholar 

  • Gersbach, H. (2003). Incentive contracts and elections for politicians and the down-up problem. In M. Sertel & S. Koray (Eds.), Advances in economic design. Berlin: Springer.

    Google Scholar 

  • Gersbach, H. (2004). Competition of politicians for incentive contracts and elections. Public Choice, 121, 157–177.

    Article  Google Scholar 

  • Gersbach, H., & Liessem, V. (2008). Reelection threshold contracts in politics. Social Choice and Welfare, 31(2), 233–255.

    Article  Google Scholar 

  • Gersbach, H., & Müller, M. (2006). Markets, contracts, and elections. CER-ETH Discussion Paper, ETH Zurich, 06-56.

  • Gibbons, R. (1998). Incentives in organizations. Journal of Economic Perspectives, 12, 115–132.

    Google Scholar 

  • Grossman, S., & Hart, O. (1983). An analysis of the principal-agent problem. Econometrica, 51, 7–45.

    Article  Google Scholar 

  • Hahn, R., & Tetlock, P. (2004). Using information markets to improve policy. AEI-Brookings Joint Center Working Paper, 04-18.

  • Hanson, R. (2003). Shall we vote on values, but bet on beliefs. Mimeo, George Mason University.

  • Hibbs, D. (2000). Bread and peace voting in US presidential elections. Public Choice, 104, 149–180.

    Article  Google Scholar 

  • Holmström, B. (1979). Moral hazard and observability. Bell Journal of Economics, 10, 74–91.

    Article  Google Scholar 

  • Lazear, E. (2000). Performance pay and productivity. American Economic Review, 90, 1346–1361.

    Article  Google Scholar 

  • Millimet, D., Sturm, D., & List, J. (2004). The economic consequences of electoral accountability revisited. Mimeo, University of Munich.

  • Mirrlees, J. (1976). The optimal structure of incentives and authority within an organization. Bell Journal of Economics, 7, 105–131.

    Article  Google Scholar 

  • Morris, P. (1983). An axiomatic approach to expert resolution. Management Science, 29(1), 24–32.

    Article  Google Scholar 

  • Rosenblueth, E., & Ordaz, M. (1992). Combination of expert opinions. Journal of Scientific and Industrial Research, 51, 572–580.

    Google Scholar 

  • Smart, M., & Sturm, D. (2004). Term limits and electoral accountability. CEPR Discussion Paper, 4272.

  • Wolfers, J., & Zitzewitz, E. (2004). Prediction markets. Journal of Economic Perspectives, 18(2), 107–126.

    Article  Google Scholar 

  • Wolfers, J., & Zitzewitz, E. (2006). Five open questions about prediction markets. Federal Reserve Bank of San Francisco–Working Paper Series, 2006-06.

Download references

Author information

Authors and Affiliations

  1. CER-ETH—Center of Economic Research at ETH Zurich and CEPR, 8092, Zurich, Switzerland

    Hans Gersbach & Markus Müller

Authors
  1. Hans Gersbach
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Markus Müller
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Hans Gersbach.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Gersbach, H., Müller, M. Flexible pensions for politicians. Public Choice 145, 103–124 (2010). https://doi.org/10.1007/s11127-009-9556-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11127-009-9556-2

JEL Classification

Search

Navigation