Credible Commitment to Long-Term Policy by Intergenerational Sovereign Wealth Funds?

It is inherently difficult to commit to a specific long-term policy goal and adhere to it over longer stretches of time. This is particularly the case at the international level as the fragmentation of domestic politics, the challenge of credible commitment (time inconsistency), and international anarchy interact. Perhaps the gravest single challenge is how to credibly commit and then keep promises to intergenerational welfare sharing if substantial material resources are at stake as spending earlier may lead to immediate political gratification. Perhaps the clearest examples of this challenge occurs in the context of long-term sovereign wealth funds that are, in principle, managed over an indefinite time horizon. Two such funds are the Alaska Permanent Fund (APP) and the Government of Norway Pension Fund Global (GPFG, which is a pension fund in all but name). Both funds are fed by public sector profits from oil and gas extraction and are meant to provide benefits to future generations, with the APP providing annual payouts to individual Alaskans while maintaining real value and the GPFG infusing its expected long-term real returns through the Norwegian national budget. Given the volatility of oil prices during this decade, the APP has come under considerable pressure to rededicate its purpose to government budget funding (rather than payout to individual Alaskans) due to extreme revenue shortfalls for the Alaska State Government, whereas Norway only faces comparatively minor challenges to its institutional setup. This study relies on two waves each of interviews on the APP and GPFG over the years 2012-2016, budgetary data, and mass public surveys to illustrate the degree of challenge of credible commitment to long-term intergenerational welfare-sharing in two reasonably similar political systems. Employing counterfactual reasoning, we explore the factors which may account for the differences in political outcomes between Alaska and Norway.