OPTIONS TO THE REALM: A COST NEUTRAL PROPOSAL TO IMPROVE POLITICAL INCENTIVES

Joshua R. Hendrickson, Alexander William Salter

Research output: Contribution to journalArticlepeer-review

Abstract

In this article, we draw on the literature on political property rights, political accountability, and strategic management and entrepreneurship to propose a cost neutral reform aimed at promoting long-run economic prosperity. We propose replacing politicians' defined benefit pensions with a financial contract that is tied to economic performance. In particular, we propose a contract that pays out a lump sum to a politician 30 years after their election if real gross domestic product per capita is above some preset benchmark. Furthermore, we show that the contract can be priced such that it is cost neutral in terms of present value with a defined-benefit pension. We argue that this contract provides a net benefit to society. (JEL D70, D72).

Original languageEnglish
Pages (from-to)515-529
Number of pages15
JournalContemporary Economic Policy
Volume38
Issue number3
DOIs
StatePublished - Jul 1 2020

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