Elections, contracts and markets
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Author / Producer
Date
2006-10
Publication Type
Working Paper
ETH Bibliography
yes
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Abstract
As the performance of long-term projects is not observable in the short run politicians may pander to public opinion. To solve this problem, we propose a triple mechanism involving political information markets, reelection threshold contracts, and democratic elections. An information market is used to predict the long-term performance of a policy, while threshold contracts stipulate a price level on the political information market that a politician must reach to have the right to stand for reelection. Reelection thresholds are offered by politicians during campaigns. We show that, on balance, the triple mechanism increases social welfare.
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Publication status
published
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Journal / series
Volume
06/56
Pages / Article No.
Publisher
CER-ETH – Center of Economic Research at ETH Zurich
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Date collected
Date created
Subject
Elections; Threshold contracts; Democracy; Information markets; Triple mechanism
Organisational unit
02045 - Dep. Geistes-, Sozial- u. Staatswiss. / Dep. of Humanities, Social and Pol.Sc.