Incentives Make Civic Sense

In an environment where corruption is chronic, the quality of political personnel deteriorates, while higher compensation attracts better educated administrators. In electoral systems with party lists of candidates, it is natural to expect arbitrary behavior from politicians, who have become unaccountable to citizens. All these situations have rational explanations even if they give rise to less than optimal outcomes for the community. They are rational responses on the part of political professionals to the incentives provided by the institutional system and the stringency or lack thereof with which voters monitor political behavior, explains Guido Tabellini, Full Professor of Economics at Bocconi and one of the world's main proponents of the recently developed discipline of political economics, which uses economic models to analyze the behavior of politicians and the functioning of politics. Fabio Todesco spoke with Professor Tabellini.

Do we incur the risk of cynicism if we look at politics through the lense of economics?

No, because the newest developments have managed to couple the rationality of political professionals with some sociological aspects that are useful for understanding voter behavior, such as civic sense or social capital. We have noticed that institutions work better where civic sense is more widespread across the electorate, because this drives political participation and a more active control of the political class, and, ultimately to the creation of incentives that push politicians to behave properly. Some analyses have looked at proxies to measure civic sense, one of the most promising being the frequency of blood donation.

Is civic sense independent from institutional design?

No, it's not independent: the possibilities that citizens have to exert control are dependent on the institutional structure. A proportional system with closed lists prevents such controls, as well as the transmission of incentives. Open lists and first-past-the-post voting systems are more effective in doing so.

Does politics attract individuals sharing peculiar characteristics?

Today we know that the decision to enter a political career fundamentally depends on incentives: higher compensation attracts better educated people, whereas in environments with widespread corruption lesser educated people are drawn to politics.

And once they are in office, what happens?

In this case, the determining incentive is the likelihood of re-election, and we do observe that in terms of absenteeism and corruption, representatives that must stand for re-election behave better than those on their last term. On the other hand, it's exactly the prospect of re-election that drives the electoral cycles of economic policy: whoever is in office tries to stimulate the economy, by increasing public spending as the electoral campaign starts, only to take a more restrictive policy stance at the start of the second term.

So is public spending distorted by politics?

Yes, and not only in its aggregate level, but also in its composition, to a degree dependent on institutional design. In order to be re-elected a politician doesn't have to satisfy the whole community, but his/her own constituency. Thus the phenomenon of selective public spending: it grows, but if provides few public goods for all, since spending is mostly targeted toward specific sections of the electorate in order to secure a majority of voters. If it only takes the votes of a minority to win, because voter turnout is low, the bias is much stronger.

So is economics truly useful to understand politics and its actors?

Economics studies how individuals react to economic and non-economic incentives, and politicians are rational agents, true professionals who pursue their objectives in a sophisticated way and react to incentives in terms of the electoral score they want to get and the policy changes they want to obtain. Economics thus helps our understanding of political behavior as a consequence of institutionally determined incentives, and in terms of the selection of political personnel.

And what about voters?

Voting behavior is determined by values and psychological attitudes that have weak links with incentives, but the approach can be useful in those situations in which voters decide according to their economic interests.

How does political economics differ from political science?

Political science has traditionally place greater attention on political parties and citizens, and less on the behavior of individual politicians, while this approach uses microeconomics to analyze political decisions and careers.