Z,
secure re-election and the alternative character of the game. The incumbent is tempted to spend
the stock of resources currently available to secure the re-election before the other party will.3
This game can be located in the literature dealing with sequential games where the main concern
is the strategic interaction over a state variable.4 Regarding the line of research focusing on
political economy aspects, an example of this type of game is McKibbin, Roubini and Sachs
(1987). The authors, adopting the partisan assumption and exogenous probability of re-election,
advance a method of solving linear quadratic two-party games with state variables, but they can
only obtain the solution by numerical simulation. Other examples in which the state variable is
the public debt are Alesina and Tabellini (1990) and Aghion and Bolton (1990).
The motivation of the paper is the recent experience of Venezuela. The country has been an oil
economy since the late 20s when oil displaced coffee as the main export product and source of
fiscal revenues. During the second half of the XXth century, oil has represented, in average,
25% of GDP, 80% of export revenues and 70% of fiscal revenues. During the period 1968
until 1992, politics in the country was dominated by a two-party system that was in charge of
administering generous oil revenues. The last decade of the last century witnessed the lost of
political stability. Since 1998, Colonel Hugo Chavez has been in office with a strong popular
support, a high concentration on power and without a political opposition of significance. He is
caudillo-type figure who came to scene in 1992 as one of the leaders of a failed coup d’etat
during that year. Although the military uprising did not succeed in overthrowing the government,
it set in motion a process that undermined severely the traditional parties. 5
The paper is divided into four main sections. The first one introduces the players, strategies, and
the equilibrium concept. The following section is devoted to the analysis of co-operation
between both parties defined in terms of the possibility of reaching an early stopping equilibrium
3 Another possible source of temptation for the incumbent is to borrow today as much as possible because,
due to the alternative character of the game, the borrower may not pay fully for the debt in the future (in
political and economic terms). For the analysis of this case see Astorga (1996).
4 The main sources of application of sequential games in economics have been resource extraction and
dynamic duopoly games. See for examples of games of resource extraction Benhabib and Radner (1992), and
Dutta and Sundaram (1988). Regarding dynamic duopoly games see Maskin and Tirole (1988a, 1988b), and
Fudenberg and Tirole (1991: 528).
5 For more information about the economic history of the country see Astorga (2000) and references therein.