Freakonomics described the economics of a crack-selling gang – a tournament model where you don’t earn much unless you can get to the top of the pyramid. Columbia Business School professor Ray Fisman, who has shown up on this blog before, argues that politics isn’t all that different. In Slate, Fisman summarizes his new working paper, coauthored with Florian Schulz and Vikrant Vig, which uses disclosed finances of politicians in India in the last election cycle. The researchers found that being a politician doesn’t really pay off:
Comparing the reported assets of politicians who have run for office in elections since 2003, we find that candidates who were elected to state assemblies fared only marginally better financially than runners-up. There is an exception: Politicians who get high-level cabinet posts do sometimes make out like bandits. But for politicians who never make it very far up the hierarchy, politics doesn’t really pay at all.
Since 2003, Indian law has required anyone running for office to publicly list their asset holdings and bank account balances. The researchers found that wealth of an elected member of the legislative assembly grows 6 percent faster than his runner-up; politicians who attain cabinet-level posts see their wealth grow 15 percent faster. Wealth accumulation is also faster for incumbents and those who win by a small margin.