Economics: The Open-Access, Open Assessment E-Journal http://www.economics-ejournal.org en Philip E. Graves A Simple Coase-Like Mechanism that Transfers Control of Government Spending Levels from Politicians to Voters 2007-03-23 Elected representatives have little incentive to pursue the interests of those electing them once they are elected. This well-known principle-agent problem leads, in a variety of theories of government, to non-optimally large levels of government expenditure. An implication is that budgetary rules are seen as necessary to constrain politicians ’ tax and spending behavior. Popular among such constraints are various Balanced Budget Amendment proposals. These approaches, however, are shown here to have serious limitations, including failure to address the central concern of spending level. An alternative approach is advanced here that relies on a Coase-like mechanism that transfers control of government spending to the voter. Prisoner's dilemma incentives and political competition are seen to be critical to the superiority of the present mechanism to approaches requiring budget balance. http://www.economics-ejournal.org/economics/discussionpapers/2007-12 JEL H11 JEL H61 JEL H62 JEL H72