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Does the paradox of plenty exist? Experimental evidence on the curse of resource abundance

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Abstract

There is conflicting evidence about whether abundant resources are indeed a blessing or a curse. We make use of specially designed economic experiments to investigate how resource abundance affects cooperation in the absence or presence of regulatory institutions. We observe that in the absence of regulatory institutions, there is less cooperation in groups with access to large resource pools than in groups with access to small resource pools. However, if regulatory institutions are present, we show that there is more cooperation in groups with access to large resource pools than in groups with access to small resource pools. Our findings also reveal that resource users are more willing to regulate access to abundant than to small resource pools. These findings provide causal evidence for the “paradox of plenty” and identify the causes for the pitfalls and potentials of resource wealth.

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Notes

  1. Our results are very much in line with the seminal argument in Demsetz (1967): institutions internalize externalities, such as property rights, when the benefits are large enough to justify the costs.

  2. While there are several proposed explanations (Sachs and Warner 2001), we chose to focus on the crowding-in variant for at least four reasons. First, there is recent evidence that there are significant correlations between cooperation/conflict/corruption measures and economic outcomes (Ross 2001; Collier and Hoeffler 2005; Vicente 2010). Second, there is also evidence for links between the institutional environment and economic outcomes (Bohn and Deacon 2000; Acemoglu et al. 2001; Mehlum et al. 2006; Robinson et al. 2006; Boschini et al. 2007), which suggests a crucial role of cooperation/conflict/corruption as these behaviors are likely to be related to the institutional environment (Svensson 2005; Mocan 2008). Third, the crowding-in variant seems to be less contested than many other variants such as the Dutch Disease (Corden and Neary 1982; Sachs and Warner 2001; Mehlum et al. 2006). Fourth, cooperation/conflict can be accurately and objectively identified in a behavioral experiment.

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Authors and Affiliations

  1. Department of Economics, Monash University, Clayton, 3800, Australia

    Andreas Leibbrandt

  2. Department of Economics and UHERO, University of Hawai’i, Honolulu, HI, 96822, USA

    John Lynham

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  1. Andreas Leibbrandt
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Correspondence to Andreas Leibbrandt.

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Leibbrandt, A., Lynham, J. Does the paradox of plenty exist? Experimental evidence on the curse of resource abundance. Exp Econ 21, 337–354 (2018). https://doi.org/10.1007/s10683-017-9539-y

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