Elections serve an important function in modern democracies by allowing voters to express their support for politicians who share their ideological views and plan to pursue the policies they prefer. In addition, elections provide voters the opportunity to remove from office incumbents that are not adequately performing the duties of their office. 

Over the last decade, much progress has been made in modeling electoral competition as a dynamic game with asymmetric information. One important qualitative finding of the theoretical literature is that the institutional design of election rules (e.g., term limits) can have a large impact on election outcomes and voters' welfare. However, few attempts have been made to quantify these welfare effects.

This paper shows how to identify and estimate, using standard semi-parametric techniques, a class of dynamic games with perfect monitoring that have been at the frontier of recent research in political economy. Using US gubernatorial election data, they estimate the model to study the consequences of term limits.

The team finds that the benefits from holding office are significant and large in magnitude. As a consequence, the prospects of reelection provide strong incentives for moderate governors to move towards the center of the ideological spectrum during their first term in office. Voters are willing to accept significant trade-offs in ideology to obtain a more capable governor.

They find that there are significant differences in ideology across states and between parties within states. In contrast, there are only small differences in ability across states and no significant differences in the ability across parties. Term limits reduce welfare in the baseline model by six percent. They also find that tenure effects are negative for both parties. Consequently, term limits have the capacity to be constructive. The team show that with moderate levels of negative tenure effects term limits can be welfare improving.