Working Paper: CEPR ID: DP4261
Authors: Hans Gersbach
Abstract: We examine a model in which two politicians compete for office and for wages. Their remunerations are either set by the public or are offered competitively by the candidates during campaigns. Our main finding shows that competitive wage offers by candidates lead to lower social welfare than remunerations pre-determined by the public, since less competent candidates are elected or wage costs and tax distortions are higher.
Keywords: compensation; elections; wages; free riding; incentive contracts; politicians; underprovision
JEL Codes: D70; D80
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Public wages (J38) | Competence of elected candidates (D79) |
| Competitive wage offers (J31) | Competence of elected candidates (D79) |
| Competitive wage offers (J31) | Social welfare (I38) |
| Predetermined wages (J33) | Social welfare (I38) |
| Self-designed wages (J31) | Competence of elected candidates (D79) |
| Self-designed wages (J31) | Excessive wage costs (J30) |