The Dictator and the Parties A Study on Policy Co-operation in Mineral Economies

The Dictator and the Parties: a study on policy co-operation in
mineral economies

Pablo Astorga^*

October, 2001

Abstract

This 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, co-
operation 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.

Keywords: Political Economy, Non-cooperative games, Democracy, Mineral Economies,
Venezuela

JEL classification codes: O11, N16, C72, H63

Correspondence to:

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^* This paper is based on one of the chapters of my D.Phil. thesis at Oxford University. I would like to thank
Christopher Bliss for his supervision and Valpy Fitzgerald and John Driffill for helpful comments.

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