Electoral Control in the Presence of Moral Hazard and Adverse Selection

Abstract

This article studies a two-period game between voters and an elected incumbent where voters care both about controlling incumbent corruption and selecting competent incumbents. If voters’ reelection criterion is very demanding, only very competent incumbents will be reelected but corruption will be significant. Conversely, if voters use a softer reelection criterion, corruption may be more controlled but too many incompetent incumbents will be reelected. A trade-off arises in equilibrium between the incentive and the selection motives. The model is extended to include society’s risk aversion and shows that the more risk averse, the softer the voters’ reelection criterion.