Working Paper: CEPR ID: DP5717
Authors: Hans Gersbach; Markus Müller
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.
Keywords: democracy; elections; information markets; threshold contracts; triple mechanism
JEL Codes: D72; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| implementation of the triple mechanism (C59) | increase in social welfare (H53) |
| threshold contracts (L14) | behavior of politicians (D72) |
| political information markets (D72) | reelection probability of politicians (D72) |