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Experiments in policy evaluation

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Resource curse

How sudden wealth creates havoc

When natural gas deposits were found in the Netherlands in the 1960s, it seemed that good times were on the way, but life is not always that simple. Max Kwiek explores how a windfall may turn into a curse

Can owning something valuable make you worse off? This appears to be a strange question, but sometimes it is speculated that a sudden gain of wealth, such as winning a lottery or insurance claim, may lead to dreadful outcomes. Winners are said to spend their money without any reflection, for example on gambling, parties and other types of extravagant consumption, ending up poorer or even bankrupt soon after taking possession of their unexpected fortune.

Instead of focusing on individuals, this article will discuss a similar phenomenon affecting countries. Nations can also experience an unexpected windfall of wealth, for example in the form of discoveries of large deposits of valuable natural resources such as oil, natural gas or diamonds. In this case too, there is some tentative evidence that such a country may end up no better off than its apparently less lucky neighbours. This is known as the natural resource curse hypothesis. In this article I will sketch the main explanations of why natural resources may be perceived as a curse.

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Experiments in policy evaluation

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Funding pensions: methods and risks

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