Escaping the Resource Curse by Macartan Humphreys Jeffrey D. Sachs Joseph E. Stiglitz

Author:Macartan Humphreys, Jeffrey D. Sachs, Joseph E. Stiglitz
Language: eng
Format: epub
Tags: Business and Economics/General
Publisher: Columbia University Press
Published: 2011-12-02T05:00:00+00:00

POLITICAL ECONOMY INCENTIVES AGAINST ACCUMULATION

In this section we analyze the political economy incentives that may face politicians in countries with accumulated revenues—whether or not these revenues are formally a “fund.” To set up institutional solutions to make it more likely that a beneficial spending path will be followed, it is necessary to understand the incentives that make it unlikely in the first place. Why do decision makers tend to be impatient—why are they so likely to spend too much of the money that is available instead of saving it for harder times and for future generations?

Our main analysis concentrates on the nature of interest-group politics with power rivalry. Most of politics involves a struggle between competing interests, and we show in what follows that the competition for power among different groups can create perverse incentives to overspend in early time periods (with less left for later), even when there exists a more stable time path of spending that all groups would prefer. After this main case, we extend the basic analysis to discuss how overspending can be affected by the following possibilities.

Politicians may gain political support through higher public expenditures.

Conversely, an informed citizenry might punish politicians who imprudently overspend.

Increased public spending may be privately valuable for the politician (independently of any political support it buys him).

Accumulated revenues may provide an incentive to undermine the “rules of the game” embodied in the country’s governing institutions.

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