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Instability of Democracy as Resource Curse

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  • Polterovich, Victor
  • Popov, Vladimir
  • Tonis, Alexander

Abstract

We suggest a dynamic game theoretic model to explain why resource abundance may lead to instability of democracy. Stationary Markov perfect equilibria of this game with four players – Politician, Oligarch, Autocrat and Public (voters) – are analyzed. Choosing a rate of resource rent tax, potential Autocrat competes with conventional Politician for the office, and Oligarch, the owner of the resource wealth, bribes Politician to influence her decisions. Actual Autocrat's tax policy may be different from the announced one. If the difference is large, then Public may revolt or Oligarch may organize a coup to throw Autocrat down. It is shown that the probability of democracy preservation is decreasing in the amount of resources if the institutional quality is low enough. It does not depend on the amount of resources, if the institutional quality is higher than a threshold. The level of the threshold, however, depends positively on the resource wealth. We have found also that under very low institutional quality, a paradoxical effect takes place: the probability of democracy preservation may decrease with small improvements of institutional quality. It is shown as well that Oligarch earns larger part of rent under democracy than under autocracy. This result conforms to empirical observation which is demonstrated in the paper: under low quality of institutions, democratization leads to higher inequality and inequality entails worsening of the attitude to democracy.

Suggested Citation

  • Polterovich, Victor & Popov, Vladimir & Tonis, Alexander, 2009. "Instability of Democracy as Resource Curse," MPRA Paper 22069, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:22069
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    References listed on IDEAS

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    Cited by:

    1. Mohammadi, Teymour & Jahangard, Fateme & Khani Hoolari, Seyed Morteza, 2014. "The relationship between reserves of oil endowment and economic growth from the resource curse viewpoint: a case study of oil producing countries," MPRA Paper 56092, University Library of Munich, Germany.
    2. N. N. Mikheeva, 2018. "Factors of Growth in Russian Regions: Adapting to New Realities," Regional Research of Russia, Springer, vol. 8(4), pages 334-344, October.
    3. Rubinstein, A., 2015. "Economic Crisis and the New Paradigm of Public Support of the Patronized Goods," Journal of the New Economic Association, New Economic Association, vol. 26(2), pages 264-269.

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    More about this item

    Keywords

    resource abundance; resource curse; democracy; autocracy; elections; political stability;
    All these keywords.

    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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