Essays in Political Economy
This dissertation consists of two chapters on topics in political economy. In the first chapter, using hand-collected data from collective bargaining agreements for state-level public sector unions, I develop and calibrate a stochastic bargaining model as in Merlo and Wilson (1995) and investigate the effects of political and economic variables on wages, pensions, and delay in reaching agreement. In the model, a governor and a union bargain over a wage and pension outcome. The economic state, as measured by the unemployment rate, evolves stochastically and affects the propensity of the governor and union to reach agreement in any given period. Furthermore, political variables, including party of the governor, partisanship of the district, and incumbency, affect the relative payoffs and therefore the wage, pension, and time to agreement. I find that negotiated wage and pension growth is higher under Democratic governors, while increases in the unemployment rate at the beginning of bargaining have a negative impact on compensation levels, the magnitude of which varies by party and time before the next election. In the second chapter, which is co-authored with Ekim Cem Muyan, I develop a model of campaign strategies, namely the choice to campaign negatively or positively. In particular, I construct a model of political campaigns, based off of Skaperdas and Grofman (1995), in which candidates allocate their budget between positive and negative campaigning. Elections vary according to politician- and district-specific characteristics, as well as the unobservable (to the econometrician) measure of voter types. I calibrate the model to match stylized facts on campaign tone that we document using a wide array of sources, including data on advertising tone from Wisconsin Advertising Project, campaign contributions from the Database on Ideology, Money in Politics, and Elections, and election results. The calibrated model implies that, overall, campaign spending is not particularly effective at increasing votes -- a 10% increase in the average candidate's budget, corresponding to about $240,000, raises his or her expected vote share by about 0.4 percentage points. The model also implies that negativity is marginally more useful for candidates who are trailing than those leading, though not by a wide margin.