Vote-Share Contracts and Learning-by-Doing

We examine the interaction between vote-share contracts and learning-by-doing. Candidates for a political office are allowed to offer vote-share thresholds. The elected politician has to achieve at least this threshold value in his reelection result to remain in office for a second term. We assume there are learning by-doing effects for incumbents and show that competition leads to vote-share contracts implementing the socially optimal threshold, which is above one-half. Vote-share contracts improve the average ability level of a reelected politician and increase effort in the first term of an incumbent. On the other hand, vote-share contracts reduce the probability that learning-by-doing takes place. However, the overall effect of vote-share contracts is welfare-enhancing, even under the assumption of learning-by-doing