Disentangling Accountability and Competence in Elections: Evidence from U.S. Term Limits

Abstract

We exploit variation in U.S. gubernatorial term limits across states and time to empirically estimate two separate effects of elections on government performance. Holding tenure in office constant, differences in performance by reelectioneligible and term-limited incumbents identify an accountability effect: reelection-eligible governors have greater incentives to exert costly effort on behalf of voters. Holding term-limit status constant, differences in performance by incumbents in different terms identify a competence effect: later-term incumbents are more likely to be competent both because they have survived reelection and because they have experience in office. We show that economic growth is higher and taxes, spending, and borrowing costs are lower under reelection-eligible incumbents than under term-limited incumbents (accountability), and under reelected incumbents than under first-term incumbents (competence), all else equal. In addition to improving our understanding of the role of elections in representative democracy, these findings resolve an empirical puzzle about the disappearance of the effect of term limits on gubernatorial performance over time.E lections play two potential roles in representative democracy. First, elections may mitigate moral hazard by creating accountability; that is, politicians may take costly actions on behalf of voters because they know that they will only be reelected if their performance exceeds some standard (e.g., Barro 1973;Ferejohn 1986). Second, elections may mitigate adverse selection by allowing voters to select competent types who perform better, in expectation, than an unknown challenger. Moreover, in the absence of term limits, elections allow voters to retain incumbents whose competence has increased through experience (Padro i Miquel and Snyder 2006). Thus, over time elections may help voters weed out bad types and retain good types (e.g., Ashworth 2005; Ashworth and Bueno de Mesquita 2008;Fearon 1999;Gordon, Huber, and Landa 2007;Gowrisankaran, Mitchell, and Moro 2008;Zaller 1998). 1 Empirically distinguishing the accountability and competence effects of elections has proven difficult. While Fearon (1999) emphasizes a trade-off between accountability and competence (or selecting good types), in many theoretical models, both effects operate in the same direction (Ashworth 2005;Ashworth and Bueno de Mesquita 2006;Banks and Sundaram 1998;Besley 2006;Duggan 2000). Voters' threat to reelect only incumbents believed to be good types gives politicians an incentive to exert effort in order to try to convince voters that they are ''good'' (that is, more competent than they really are). For this reason, behavior by voters that alleviates adverse selection simultaneously alleviates moral hazard.We devise an empirical strategy to isolate the two effects by exploiting variation in the length of gubernatorial term limits. The basic argument is as follows. The relative performance of incumbents in the same term, some of whom are eligible to run again and some of whom a...

Monitoring Corruptible Politicians

“…The difference may be due to differences in social capital or norms, or different incentives for virtuous citizens to enter politics. Alternatively, at least in the case of Alt, Bueno de Mesquita, and Rose (2011), they may be due to differences in the nature of the positions studied; governors make more high-level decisions while a mayor's work is more administrative. A third possibility is that sanctioning and selection effects differ by outcome variable (e.g., fiscal policy versus corruption).…”

Political Agency Model of Persistent Electoral Success with Endogenous Rents

“…14 As empirically proven by Alt, de Mesquita andRose (2011), Besley andCase (1995b), Ferraz and Finan (2011) and Smart and Sturm (2006).…”

“…They were mostly concerned with observing gubernatorial elections and the effects of term limits on governor rent-extracting behaviour Case 1995a, 1995b;Alt, De Mesquita and Rose 2011), corruptive activities (Ferraz and Finan, 2011) or on environmental policy (List and Sturm, 2006). Besley and Case (2003) test the political agency framework on the effect of political institutions on policy choices in the U.S.…”

“…Existence of parties eliminates the emphasis on term limits, an important factor of political agency literature Case, 1995b, 2003;Smart and Sturm, 2006;Alt, de Mesquita and Rose, 2011;Ferraz and Finan, 2011 Political rents obtained from holding office are defined as any form of private benefits acquired from the political arena, as interpreted by Tullock (1967) and Krueger (1974 Ferraz and Finan (2011). They recognize corruptive activities as a form of frauds in procurement, diversion of public funds (expenditures without proof of purchase) and overinvoicing (buying goods above the market price).…”

Representation in State Supreme Courts

“…1 Moreover, these concepts about legislatures also appear to describe term-limited governors and their economic and fiscal policies (Alt, Bueno de Mesquita, and Rose 2011).…”