DP4261 Competition of Politicians for Wages and Office

Author(s): Hans Gersbach
Publication Date: February 2004
Keyword(s): compensation, elections and wages, free riding, incentive contracts, politicians, underprovision
JEL(s): D70, D80
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4261

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.