Oil, Coffee and the Dynamic Commons Problems in Colombia

Abstract

The dynamic commons problem arises when different groups in society engage in intense redistributive activity as a result of an export boom. This paper analyzes the role that institutions play in ameliorating that problem in the case of coffee and oil in Colombia. The paper presents a model that rationalizes the existence of a federation of coffee producers that effectively reduces inefficient redistribution to other sectors of society. According to the empirical evidence we find that domestic coffee prices have been unaffected by political factors, so that in practice appropriation of coffee rents does not depend on electoral and partisan cycles. The case of oil is substantially different. Here, rents are claimed by a large number of divided agents. According to the model, one feasible solution to the dynamic commons problem when the fiscal structure is not unitary is to impose a set of rules that restrict appropriations by different groups during windfalls. The major cost of this solution, embodied in the Oil Stabilization Fund, is the total loss of flexibility.