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Stochastic petropolitics: The dynamics of institutions in resource-dependent economies

Author

Listed:
  • Raouf Boucekine

    () (Aix-Marseille University (IMéRA and AMSE), CNRS and EHESS)

  • Fabien Prieur

    () (EconomiX, University Paris Nanterre)

  • Chrysovalantis Vasilakis

    () (University of Bangor and IRES, Université catholique de Louvain)

  • Benteng Zou

    () (CREA, Université du Luxembourg)

Abstract

We provide an analysis of institutional dynamics under uncertainty by means of a stochastic differential game of lobbying with two players (conservatives vs liberals) and three main ingredients. The first one is uncertainty inherent in the institutional process itself. The second considers resource windfalls volatility impact on economic and institutional outcomes. Last but not least, the resource windfall level matters in the relative bargaining power of the players. We compute a unique closed-loop equilibrium with linear feedbacks. We show that the legislative state converges to an invariant distribution. Even more importantly, we demonstrate that the most likely asymptotic legislative state is favorable to the liberals. However, the more volatile resource windfalls, the less liberal is the most likely asymptotic state. Finally, we assess the latter prediction on a database covering 91 countries over the period 1973-2005. We focus on financial liberalization policies. We find that as the resources revenues volatility increases, the financial liberalization index goes down. We also find that this property remains robust across different specifications and sample distinctions.

Suggested Citation

  • Raouf Boucekine & Fabien Prieur & Chrysovalantis Vasilakis & Benteng Zou, 2018. "Stochastic petropolitics: The dynamics of institutions in resource-dependent economies," CREA Discussion Paper Series 18-11, Center for Research in Economic Analysis, University of Luxembourg.
  • Handle: RePEc:luc:wpaper:18-11
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    References listed on IDEAS

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    More about this item

    Keywords

    Institutional dynamics; petropolitics; lobbying games; revenue-dependent lobbying; power; stochastic dynamic games; stochastic stability;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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