DP4075 Incentive Contracts and Elections for Politicians with Multi-Task Problems

Author(s): Hans Gersbach, Verena Liessem
Publication Date: October 2003
Keyword(s): elections, incentive contracts, multi-task problems
JEL(s): D72, D82
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4075

We consider a model with a politician facing a multi-task problem while in office. The re-election mechanism distorts the allocation of effort in favour of tasks whose outcomes can be measured more precisely than others. We show that a combination of elections and incentive contracts can alleviate this inefficiency. The incentive contract does not require information about the performance of the politician and is self-financing across terms.