Competition of politicians for wages and office

We examine a model in which two politicians compete for office and for wages. Their remunerations are either set by the public or are offered competitively by the candidates during campaigns. Our main finding shows that competitive wage offers by candidates lead to lower social welfare than remunerations predetermined by the public, since wage competition may lead to higher wage costs or to the election of less competent candidates. I would like to thank Alexandrina Braack, Peter Bernholz, Robert Dur, Amihai Glazer, Volker Hahn, Stephan Imhof, Verena Liessem, Christian Schultz, Otto H. Swank, conference participants at the annual meeting of the Public Choice Society 2000, the annual conference of the Royal Economic Society in Durham 2001, the annual congress of the European Economic Association 2001 in Lausanne, seminar participants in Heidelberg and at the University of California, Irvine, and two referees for their valuable suggestions and comments.