Wolpin, and seminar participants at numerous conferences and workshops for comments and discussions. We would also like to thank Jason Dickhaut for excellent research assistance. Sieg acknowledges the support of the National Science Foundation.
AbstractThe objective of this paper is to estimate a dynamic game of electoral competition and to evaluate the role that term limits play in gubernatorial elections. In our model candidates from two parties compete in a sequence of statewide elections. Candidates differ in their ideological positions and competence. Both dimensions are initially unobserved, but are revealed through observed incumbents' behavior. We design and implement a semi-parametric estimator and find strong evidence in favor of policy moderation. Moreover, we find significant costs associated with reelecting an incumbent. As a consequence, term limits can be welfare improving despite the fact that they increase policy volatility and force some qualified governors out of office.KEYWORDS: Identification of dynamic games, semi-parametric estimation, electoral competition, term limits, welfare analysis, gubernatorial elections, institutional design. (1998). A recent survey of this literature is given by Duggan and Martinelli (2014). 1997). Policy moderation only arises due to the desire to be reelected.Voters cannot observe ideology or the competence (valence) of an untested politician who has not served in office. Priors for these politicians depend solely on the candidates' party. Each governor perfectly reveals his or her competence during the first term in office.Voters also observe the ideological platform implemented by the governor. This endogenously chosen ideological platform may differ from the exogenous ideology because of the desire of the politician to get reelected.The chosen ideological platform serves as a signal regarding the incumbent's unobserved ideological type. Voters update their beliefs based on the observed platform and competence and vote accordingly. Our model differs from most previous dynamic games of electoral competition by allowing for two parties with different distributions of ideological positions, but with a large common support. Hence, equilibria are not symmetric with respect to both parties. There are fiscal liberals and conservatives in both parties. Not surprisingly, we find in our empirical analysis that Republicans tend to be more fiscally conservative, on average, than Democrats. In contrast, we do not find any evidence for differences in the distribution of competence among the two parties.We define and characterize a Perfect Bayesian Equilibrium of the dynamic game. We provide conditions so that our model generates unique reelection standards for both parties.These election standards imply ideological thresholds which characterize politicians' strategies. Politicians from each party can be characterized as belonging to one of three groups.Centrists always implement their preferred ideological platform and are reelected to a second term. Extremists also impleme...
This article develops and estimates a new dynamic spatial equilibrium model to study the regional transition dynamics and its impact on individual and aggregate welfare. The model consists of a multiregion, multisector economy comprised of overlapping generations of individuals with heterogeneous skills and mobility costs. The empirical findings suggest that a large fraction of the decline of the Rust Belt can be attributed to the reduction in its region-specific comparative advantage in the goods-producing sector. This decline generated significant differences in welfare across regions. Policy experiments show that such inequality can be significantly reduced through place-based policies. * Manuscript
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