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Economics of Governance

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17-05-2018 | Original Paper

Formal models of the political resource curse

Author: Desiree A. Desierto

Published in: Economics of Governance | Issue 3/2018

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Abstract

By surveying formal models, I demonstrate that the political resource curse is the misallocation of revenues from natural resources and other windfall gains by political agents. I show that the curse always exists if political agents are rent-seeking, since mechanisms of government accountability, e.g. electoral competition, the presence of political challengers, and even the threat of violent conflict, are inherently imperfect. However, the scope for rent-seeking becomes more limited as the competition over political power that threatens the incumbent government becomes more intense.

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This is not to say that the model is devoid of any political activity. On the contrary, as is subsequently shown, groups from the private sector erode property rights by fighting over rents. What makes the model an economic resource curse model is that such activities are undertaken by private actors who, unlike political agents whose principals are citizens/political constituents, cannot be made accountable by the latter through mechanisms of political turnover, e.g. elections, political coalitions, violent conflict.

Differentiating \(c^*\) with respect to \(\Omega \) gives \(\frac{\partial c^*}{\partial \Omega }=\frac{2(k-1)^2(a+1)\Omega -2[aX(k-1)]+aX[1-(k-1)(a+1)]}{aXk}\), which is positive if \(\Omega >\frac{(k-1)[2aX+aX(a+1)]-aX}{2(k-1)^2(a+1)}\).

More general forms of the contest function have been studied. See, for instance, Skaperdas (1996) and Hirshleifer (1989). In the political science literature, the contest function is typically used to describe investments in conflict and the relative coercive/military power of groups, whether in the domestic arena (see Sects. 4.2, 4.3) or interstate wars (see, e.g., Kydd 2015 for a summary.)

To my knowledge, there are no resource-curse models that incorporate any social costs of bribery.

This revolution option is only in Smith, and not included in Bueno de Mesquita et al.

Thus, a revolution, if successful, effectively changes institutions to a more democratic one in that the new leader now needs the support of half of the population. Although political institutions can change in this manner, I treat them as stable environments in that the institutional change does not explicitly involve violent conflict.

Recall that for L to be deposed, at least one of L’s coalition members has to defect to C. Thus, C has to nominate a coalition that includes a member of L’s, even though C has little affinity for that individual. She can then subsequently drop that individual from her coalition in the next period.

The success of revolution depends on the ease with which citizens can organize, which is assumed to increase with the amount of public goods.

To simplify, I restrict the analysis to the case where the costs of rebelling and of a failed revolution are too high such that (17) is always true so that the presence of a revolutionary activist poses no binding constraint. Smith also considers the case when the LHS of (17) is negative, and shows that there exists a region \((g_{1},g_{2})\), \(g_{2}>g_{1}\), for which the revolution constraint binds with equality. The incumbent then chooses either \(g_{1}\) or \(g_{2}\), depending on which yields relatively higher discretionary resources.

I simplify the exposition by abstracting from choices on taxation and transfers. Robinson et al. explicitly include such choices but show that since politicians value their own income more than others’, they will choose tax rate \(\delta \) that maximizes tax revenue, which they set to \(\delta =0\). By the same reasoning, promises of transfers are not credible, and voters realize this. Thus, both taxes and transfers are zero.

In Brollo et al., resources \(\tau \) are revenues that come from the federal government and, hence, are windfall gains from the point of view of the local government.

As the authors note, these are satisfied by the Tullock–Skaperdas type of contest function, \(\frac{\xi L^O}{\xi L^O+L^I},\xi \ge 1\), as well as the logistic form \(\frac{\exp [\xi _O L^O]}{\exp [\xi _O L^O]+\exp [\xi _I L^I]}\) in Hirschleifer and the semi-linear form \(\gamma _O+\xi _1[h(L^O)-\xi _2 h(L^I)]\).

Besley and Persson actually specify an infinitely repeated version, but where each generation dies at the end of the period after consuming all income and public goods, and a new generation replaces it in the next period. (Incumbency is inherited from the previous generation). However, there are no state variables - at each time period, new values of R and w are realized. To simplify, I thus present the game played by one generation.

This is \(g^*=(\tau -\alpha )y-\alpha R_2\) in Abdih et al., as they do not consider \(R_1\).

This is \(\frac{r^*}{y}=\alpha \Big (1+\frac{R_2}{y}\Big )\) in Abdih et al.

That \(\partial x/\partial \tau <0\) can be seen by getting \(\partial \frac{V_2^H}{V_2^L}/\partial \tau =\frac{\psi R}{(V_2^L)^2}(\alpha ^H-\alpha ^L)<0\).

A similar exercise can be done for case 2 by setting \(\tau _{y,t}^*=0\).

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Title: Formal models of the political resource curse
Author: Desiree A. Desierto
Publication date: 17-05-2018
Publisher: Springer Berlin Heidelberg
Published in: Economics of Governance / Issue 3/2018
Print ISSN: 1435-6104
Electronic ISSN: 1435-8131
DOI: https://doi.org/10.1007/s10101-018-0207-2