Resources for Sale: Corruption, Democracy and the Natural Resource Curse

A puzzling piece of empirical evidence suggests that resource-abundant countries tend to grow slower than their resource-poor counterparts. We attempt to explain this phenomenon by developing a lobbying game in which rent seeking firms interact with corrupt governments. The presence or absence of political competition, as well as the potential costs of political transitions, turn out to be key elements in generating the `resource curse.¿ These variables define the degree of freedom that incumbent governments have in pursuing development policies that maximize surplus in the lobbying game, but put the economy off its optimal path. We test our predictions by adding measures of democracy and authoritarianism to existing regression models of the resource curse, and obtain support for our hypothese

The origins of governments: from anarchy to hierarchy

We analyze development trajectories of early civilizations where population size and technology are endogenous, and derive conditions under which such societies optimally ‘switch’ from anarchy to hierarchy – when it is optimal to elect and support a ruler. The ruler provides an efficient level of law and order, but creams off part of society's surplus for his own consumption. Switching to hierarchy occurs if the state of technology exceeds a threshold value, but societies may also be ‘trapped’ at lower levels of technology, perpetuating conditions of anarchy. We present empirical evidence based on the Standard Cross Cultural Sample that support the model's main predictions