Separation of Powers, Efficient Political Competition and Provision of Public Goods∗

In this paper we provide a political game where agents decide whether to become legislators or politicians. Legislators determine the political institutions constraining politicians’ behavior and politicians compete for gaining the power to make decisions about the level of the public good. We derive a number of interesting results: i) Political competition is a necessary but not a sufficient condition for the elimination of political rents ii) Agents utilize the separation of powers in order to endogenously select institutions which restrict the power of politicians iii) In conjunction with political competition, these institutions implement the set of the Lindahl allocations in the economy as sub-game perfect Nash equilibria of the political game. iv) As a consequence of the previous result, political rents are zero in equilibrium, in the sense that the politician in government does not extract part of the social surplus because of his power. To the best of our knowledge, this in the only citizen-candidate model with this equilibrium property.