Towards A Political Economy Of Resource Dependent Regions PDF Download

"This dissertation designs and analyzes three innovative models dealing with policy formulation in resource-dependent economies. The emphasis is on two environments characterized by conflicting interests. The first environment deals with the political transition to democracy while the second deals with environmental regulation. The first chapter surveys the recent literature on the political economy of the resource curse. One strand of literature suggests that the resource curse is an outcome of a competition between rent seeking activities and productive activities. The second strand suggests that politicians desire to retain power distorts the efficiency of the economic activity leading to the resource curse. The first model explains the lack of democratization in resource exporting countries using a two period resource extraction model. The elite announce, in the first period, their plans for resource extraction and investment in the economy. Citizens, in the second period, decide on conducting a revolution to capture their share of rents from un-extracted resources. The government policies are designed to ensure that the elite remain in power and that citizens do not have the incentive to revolt. These policies subsidize extraction and investment during the first period. The extraction subsidy reduces the benefit of revolution while the investment subsidy increases its cost. On the other hand, policies in the democracy case are not constrained by the revolution threat and represent the median voter preferences. The resource is over extracted in the non-democratic case compared to the democratic case. Also, investment in the non-resource sector is lower. The model suggests that extraction path goes against price signals. Non-Democratic institution is the rational choice of the elite. The third chapter addresses the question of whether a rent extractive tariff has an impact on internal transfer policies and the probability of conflict emergence in resource exporting countries. The model also considers the impact of technological progress in resource importing economies. Conflict arises due to a threat of revolution conducted by citizens against elite. The cost of the revolution and its probability of success depend on the level of income inequality. Alternatively, citizens and elite bargain to determine the optimal transfer from resource rents. Institutional quality is key in determining whether conflict would arise or not. The direct effect of the rent extractive tariff is that it reduces the chances of conflict and increases the chances of a successful bargain between citizens and elite. The increase in the tariff renders the transfers between elite to citizens less costly to elite through two channels. The first channel is by reducing the resource rents directly. Secondly, it reduces the citizens revolution effort and the probability of a successful revolution. The tariff does not necessarily reduce elite welfare. It unambiguously reduces citizens welfare. Technological progress has the opposite effect of the tariff. The last model in chapter four adds to the previous literature on the choice of market instrument to regulate emissions. Static models suggest the superiority of price instruments under a set of strict assumptions. Dynamic models model either the regulator or industry acting strategically. Here, the model assumes that both regulator and industry act together strategically to determine the choice of market instrument. In addition to social welfare, the regulator's payoff function is extended to include political gains from investment in abatement and improvement in the provision of the environmental good. The model suggests that quantity instrument is favorable to both regulator and industry. Also, industry with high cost of abatement has a better incentive to invest in clean technology under a quota system. The regulated quantity is optimal and does not generate welfare losses. " --