Do elections always motivate incumbents?

Abstract

This paper studies a principal-agent model of the relationship between office-holders and the electorate, where the office-holder is initially uninformed about herability (following Holmström, 1999). If office-holder effort and ability interact in the “production function” that determines performance in office, then an office-holder has an incentive to experiment, i.e. raise effort so that performance becomes a more accurate signal of her ability. Elections reduce the experimentation effect, and the reduction in this effect may more than o¤set the positive “career concerns” effect of elections on effort. Moreover, when this occurs, appointment of officials (random selection from the citizenry and tenure) may Pareto-dominate elections