Competition of Politicians for Incentive Contracts and Elections
CESifo, Munich, 2001
CESifo Working Paper No. 406
![](https://cesifo.org/DocImg/cesifo_wp406.jpg?c=1689237022)
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