This study shows that the political institutions that established Venezuela's democracy in the 1960s were deliberately set up to generate a cooperative equilibrium with low stakes of power. However, an oil boom and its aftermath in the 1970s and 1980s unraveled the cooperative framework and induced rapid economic decay. The recent political reforms, increasing the stakes of power, have stimulated a complete breakdown in cooperation and a highly polarized political system. By Francisco Monaldi, nonresident fellow for the Latin America Initiative; Rosa Amelia González, Instituto de Estudios Superiores de Administracion (IESA); Richard Obuchi, IESA; and Michael Penfold, IESA. Inter-American Development Bank Research Network Working Paper #R-507, January 2006.