Benefits of Rent Sharing in Dynamic Resource Games

Abstract

Ngo Van Long’s classic paper on the risk of expropriation of natural resources published in a 1975 issue of the Journal of Economic Theory was an instant classic, which spawned a huge literature. Here I pay tribute to this wonderful brilliant yet modest scholar by briefly reviewing his contribution and then sketching how his insights can be used to analyse dynamic conflict over natural resources both as expropriation game and as a differential game on which Long has published extensively too. We discuss three results. First, if an incumbent faces a threat of a rival faction, extraction is more voracious if the factions do not share rents equally. Second, never-ending political conflict cycles are more inefficient if constitutional cohesiveness or rent sharing is strong and political instability is high. Third, resource wars are more intense if rent sharing is weak, reserves of resources are high, the wage is low, and elections occur less frequently.