DP18753 Bridling the Successor: Optimal Catenarian Discipline
Motivated by insufficient fiscal discipline in democracy, we introduce and examine “Catenarian Discipline Rules”. An office-holder decides in each period whether to use available resources for his/her own personal consumption or for providing public goods for the population. In the unique subgame perfect and renegotiation-proof equilibrium, office-holders simply maximize personal consumption during their terms, which results in minimal public good provision and the worst outcome for society. With Catenarian Discipline, the personal consumption in the first part of an office-holder’s governing period is constrained by the maximal consumption of the previous office-holder (“Catenarian Constraint”). We characterize stationary equilibria, provide necessary and sufficient conditions for asymptotically efficient equilibria and illustrate the force of Catenarian Discipline by examples. Finally, we introduce two variants of the Catenarian Constraint that allow more flexibility of governing agents to react to shocks, either regarding the timing when the Constraint will be binding or by allowing the previous office-holder to postpone the application of the Catenarian Constraint for one period.
