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OPTIONS TO THE REALM: A COST NEUTRAL PROPOSAL TO IMPROVE POLITICAL INCENTIVES
Author(s) -
Hendrickson Joshua R.,
Salter Alexander William
Publication year - 2020
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/coep.12453
Subject(s) - prosperity , economics , accountability , incentive , politics , property rights , realm , entrepreneurship , gross domestic product , microeconomics , public economics , finance , macroeconomics , economic growth , political science , law
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)