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

(short-sighted incumbent) up to μ = 1 (far-sighted incumbent). Apart for being more precise
about the definition of the discount term in the game, introducing this distinction will facilitate the
study of co-operation later in the paper.

δ(Wt, μ) is a concave function with respect to W_t : ~^~^WW^μ^ — 0 ;    ^(2W, ^) - 0

The total discount factor will remain fixed (δ_t = δ_t+1.....= δ_t+n = δ_t ) while x_t+j = r, i= 1... n,

that is to say, as long as expenditure equals current revenues.

The equation governing the evolution of the stock of reserves at time t is:

W+1 = Wt + r - x
incumbent can win with certainty. ⁹

The following section offers some comments on the meaning and empirical significance of the
main variables and parameters of the model, using the Venezuelan experience as a way of
illustration.

2.2. Interpretation of parameters values and variables

The probability of re-election is introduced to reflect the uncertainty generated by the electoral
result. A given amount of expenditure only leads to a probable electoral result. Possible
explanations for this uncertainty are lack of information about voters' preferences (or satisfaction
levels with respect to expenditure) or the effects of other variables on voter’s decisions (e.g.,
corruption scandals). Under a competitive two-party system, values of p(r) around 0.5 should
be taken as more representative. This is consistent with parties with a real electoral chance.

Current revenues (r) can be measured in absolute terms or in relative terms as percentage of
average reserves or GDP. As an example, the average amount of external revenues accruing to

⁹ INT[...] stands for an integer operator.

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