Firms are actually better than governments at internalizing costs across time. Asset values incorporate the potential future flows. For example, consider a retiring farmer. You might think that they have an incentive to run the soil dry in their last season since they won’t be using it in the future, but this would hurt the sale value of the farm. An elected representative who’s term limit is coming up wouldn’t have the same incentives.
Of course, firms incentives are very misaligned in important ways. The question is: Can we rely on government to improve these incentives.
An elected representative who’s term limit is coming up wouldn’t have the same incentives.
I think this proves too much. If elected representatives only follow self-interest, then democracy is pointless to begin with, because any representative once elected will simply obey the highest bidder. Democracy works to the extent that people vote for representatives who represent the people’s interests, which do reach beyond the term limit.
Firms are actually better than governments at internalizing costs across time. Asset values incorporate the potential future flows. For example, consider a retiring farmer. You might think that they have an incentive to run the soil dry in their last season since they won’t be using it in the future, but this would hurt the sale value of the farm. An elected representative who’s term limit is coming up wouldn’t have the same incentives.
Of course, firms incentives are very misaligned in important ways. The question is: Can we rely on government to improve these incentives.
I think this proves too much. If elected representatives only follow self-interest, then democracy is pointless to begin with, because any representative once elected will simply obey the highest bidder. Democracy works to the extent that people vote for representatives who represent the people’s interests, which do reach beyond the term limit.