DP4623 Designing Democracies for Sustainability

Author(s):	Hans Gersbach, Tobias Kleinschmidt
Publication Date:	September 2004
Keyword(s):	democracy, elections, incentive contracts, Q56, rejection/support rewards, sustainability
JEL(s):	D72, D82, H55
Programme Areas:	Public Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=4623

Democratic processes may not take the welfare of future generations sufficiently into account and thus may not achieve sustainability. We show that the dual democratic mechanism ? rejection/support rewards (RSRs) for politicians and elections ? can achieve sustainability. RSRs stipulate that incumbents who are not re-elected, but obtain the majority support among young voters receive a particular monetary or non-monetary reward. Such rejection/support rewards induce politicians to undertake long-term beneficial policies, but may invite excessive reward-seeking. We identify optimal RSRs under different informational circumstances.