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

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aggregation of the last two terms gives the size of the enforcement, which size is considerably
affected by discounting, both due to political reasons or time preferences.

The balance between temptation and enforcement determines the prospects for the emergence
or break up of co-operation and this balance is the result of a combination of various effects of
contrary direction and magnitude. Some calculations based on equation (14) provide useful
information about the consequences of changes in the probability of re-election and the level of
myopia.

3.2. Two exercises of co-operation

In what follows the results of two calculations based on (14) is presented. ²⁰ They differ in the
assumed size of the temptation, that is to say, the stock of reserves above the level of long-run
equilibrium at disposition of the current incumbent. The first calculation (shown in Figure 5)
assumed that, at t=0, the incumbent by defecting has just enough reserves to improve
significantly her probability of re-election for a second administration. The second one (Figure
6) reflects a situation in which the electoral value of the stock, if spent, would allows the
incumbent to have a very good chance of retaining office during two consecutive periods. The
scenario depicted in Figure 5 is consistent with a reasonable initial value of reserves (e.g.
enough to cover four month of imports) and a relatively low value of the political discount under
co-operation (e.g. δ _c = 0.7); whereas Figure 6 is consistent with a high stock of reserves (e.g.
eight month of imports) and a very low political discount at t=0 (e.g. δ_c ≡ 1). Of the two
situations, the former is closer to what might happen in reality while the latter is an extreme case.

In both figures the two-dimensional projection of the ICC is plotted for combination of values of
p (r ) and μ. The white area stands for all those values of p (r ) and μ where temptation
exceeds enforcement (values greater than zero). Shadows form the co-operative region, where
a move to a darker zone indicates that the co-operative result is less likely to be altered by
changes in the parameters of interest.

²⁰ The figures are generated using the simulation package Mathematica.

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