The Dictator and the Parties A Study on Policy Co-operation in Mineral Economies
AbstractThis paper develops a game to study the possibility of co-operative behaviour in a situation where the political system is dominated by two strong, opportunistic parties competing in an economy highly dependent on the export of a commodity. Since a binding agreement as an external solution is unlikely to succeed due to the close association between the incumbent party and the government (the guardian), the paper explores the extent to which co-operation between political parties that alternate in office can rely on self-enforcing strategies to provide an internal solution. For appropriate values of the probability of re-election and the discount factor, it is possible to rely on reciprocity to sustain an early-stopping equilibrium. However, cooperation is undermined by low values of re-election probability out of current revenues and party myopia. In those circumstances, the self-policing solution might not be viable and an institutional response would be necessary. The game also sheds some light on the apparent paradox of situations in some mineral- rich democracies (such as the recent Venezuelan experience) where the enjoyment of considerable external revenues is followed by a period of economic stagnation, a deterioration of political stability, and the surge of a dictatorship threat.
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Bibliographic InfoPaper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 157.
Date of creation: 01 Oct 2001
Date of revision:
Political Economy; Non-cooperative games; Democracy; Mineral Economies; Venezuela;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
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- Warwick J. McKibbin & Nouriel Roubini & Jeffrey Sachs, 1987. "Dynamic Optimization in Two-Party Models," NBER Working Papers 2213, National Bureau of Economic Research, Inc.
- Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
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