Natural Resources: Curse or Blessing?

26

that group i appropriates more resources if they fight more than others, and the resource
windfall and “stolen” resources from productive activities are large. The specification of φ
indicates that fighting undermines effective property rights (cf., Grossman, 2001). The
optimum outcome of this symmetric Nash game is:

_λtn     (N -1 'ʌ      C N -1Y¹ ( R 'ʌ     ( N -1 'ʌ ( R 'ʌ

Nf = I — I ∣1--1 I —I≥ I — I I-I.

к N ) к F ) ∖ H ) к N ) ∖ H )

V________y. √               ∖______________v √                            ∖________v √

rapacious rent seeking erosion of property rights            rapacious rent seeking

More effort is devoted to fighting (rent seeking, corruption or conflict) if resource revenues
that are at stake R are high and the return on productive activities H is low. In ‘incorruptible’
countries (very large value of F, φ close to one) there can still be rapacious rent seeking,
especially if the number of competing factions N is large, even though the erosion of property
rights is insignificant. In ‘corruptible’ countries (with low value of F), rent seeking is much
more severe and may even erupt into corruption or outright conflict. Here fighting causes
erosion of property rights (higher 1-φ = Nfi/F), which in turn induces even more fighting,
especially if “corruption culture” is strong (low F). Both the ‘rapacious rent seeking’ and the
‘erosion of property rights’ effect is stronger if there are more rival factions (high N). Fighting
implies that there are fewer resources available for productive activities; hence, utility of each
group is lower. If the country is homogenous (N = 1), there is no fighting and no undermining
of property rights so that a natural resource bonanza always benefits consumption of its
citizens. Indeed, empirical evidence suggests that the resource curse is more severe in
countries that have many ethnic or religious fractions and many languages (Hodler, 2006; van
der Ploeg and Poelhekke, 2009).

Caselli and Coleman II (2006) provide a richer theory of coalitions formed along
ethnic lines competing for natural resources. In ethnically homogenous societies members of
the losing coalition can defect to winners at low cost, which rules out conflict as an
equilibrium outcome. Of course, rent of each member of the winning coalition is diluted. In
ethnically heterogeneous societies members of winning coalitions more easily recognise
potential infiltrators by skin colour or other physical characteristics and exclude them. We
should therefore see more conflict in ethnically heterogeneous societies such as Rwanda,
Sudan, Indonesia, Afghanistan, etc. and less violent resource conflicts in homogenous
societies like Botswana. Religion or language is not such a good marker, since people can
easily acquire such characteristics. Caselli (2006) argues that resource dependence generates
power struggles and political instability, which increases the effective discount rate of the
governing group. Consequently, the elite invest less in long-run development.

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