Re-Election Threshold Contracts in Politics

Hans Gersbach, CER-ETH Center of Economic Research at ETH Zurich
Verena Liessem, University of Heidelberg

Abstract

When politicians are provided with insufficient incentives by the democratic election mechanism, social welfare can be improved by threshold contracts. A threshold contract stipulates the performance level that a politician must reach in order to obtain the right to stand for re-election. 'Read my lips' turns into 'read my contract'. Politicians can offer the threshold contracts during their campaign. These threshold contracts do not violate the liberal principle of free and anonymous elections in democracies.