Estimating Dynamic Games of Electoral Competition to Evaluate Term Limits in U.S. Gubernatorial Elections∗

The 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.