Journal Issue: World Bank Research Observer, Volume 16, Issue 1

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Social Investment Funds : An Organizational Approach to Improved Development Assistance
(Washington, DC: World Bank, 2001-04) Jack, William
This paper examines the design of social investment funds (SIFs) and explores the ways they affect agents incentives to propose, select, and implement good projects. Compared with other forms of decentralized service provision, SIFs possess features of administratively delegated authority and deep political devolution. Where existing political institutions fail to deliver assistance to vulnerable groups, a well-designed SIF may represent a useful administrative alternative. This article reviews several features that provide incentives for both SIF staff and project beneficiaries and concludes with practical guidelines for designing and appraising social investment funds.
Privatization and Corporate Governance : Principles, Evidence, and Future Challenges
(Washington, DC: World Bank, 2001-04) Dyck, Alexander
Unless developing countries embrace a corporate governance perspective, privatization is unlikely to provide the benefits of improved performance with accountability. This article introduces the concept of governance chains that can constrain the grabbing hands of public and private actors by providing information and accountability mechanisms to help investors monitor managers. Empirical data on established firms from 49 countries provide estimates of the relative importance and strength of private and formal chains of governance. The framework and empirical benchmarks help explain the outcomes of past privatizations and suggest certain steps that governments can pursue to be sure to get the most out of future privatization activity.
Competition and Scope of Activities in Financial Services
(Washington, DC: World Bank, 2001-04) Claessens, Stijn ; Klingebiel, Daniela
This article analyzes the costs and benefits of different degrees of competition and different configurations of permissible activities in the financial sector and discusses the related implications for regulation and supervision. Theory and experience demonstrate the importance of competition for efficiency and confirm that a competitive environment requires a contestable system meaning one that is open to competition-but not necessarily a large number of institutions. A competitive banking system can improve the distribution of consumer credit, enhance the corporate sector's access to financing, and mitigate the risks of financial crises. In an open market, in which services and products are provided in response to market signals, financial institutions respond by offering a wider scope of financial services. The optimal institutional design for supervisory functions is less obvious. This article reviews alternative frameworks for financial services markets from an economic perspective using experiences in several countries as a guide. Authors focus first on the role of competition in the financial sector and the tradeoffs between competition on the one hand and stability and innovation on the other. Authors next examine alternative structures of financial services dictated in many countries.
Privatization and Regulation of Transport Infrastructure in the 1990s
(Washington, DC: World Bank, 2001-04) Estache, Antonio
Although the link between improved infrastructure services and economic growth is uncertain, it is clear that reforms aimed at creating competition and regulating natural monopolies establish an environment conducive to private sector participation, incentives for companies to strive for efficiency savings that can ultimately be passed on to consumers, and greater provision of services (such as faster roll-out of infrastructure or innovative solutions to service delivery for customers not connected to an existing network). In determining the form that infrastructure restructuring might undertake or the design of a regulatory agency, policymakers can generally benefit from a review of the experiences of other countries. A key element of any decision making process should be a review of how the various types of reform will affect the efficiency of the sector and whether they will increase private financing of its significant investment needs.
Toward Transparency : New Approaches and Their Application to Financial Markets
(Washington, DC: World Bank, 2001-04) Vishwanath, Tara ; Kaufmann, Daniel
The Asian financial crisis in the late 1990s not only highlighted the welfare consequences of transparency in the financial sector but also linked this relatively narrow problem to the broader context of transparency in governance. It has been observed that objections to transparency, often on flimsy pretexts, are common even in industrialized countries. This article argues that transparency is indispensable to the financial sector and describes its desirable characteristics: access, timeliness, relevance, and quality. The authors emphasize the need to weigh the costs and benefits of a more transparent regulatory policy, and they explore the connection between information imperfections, macroeconomic policy, and questions of risk. The article argues for developing institutional infrastructure, standards, and accounting practices that promote transparency, implementing incentives for disclosure and establishing regulations to minimize the perverse incentives generated by safety net arrangements, such as deposit insurance. Because institutional development is gradual, the authors contend that relatively simple regulations, such as limits on credit expansion, may be the most reasonable option for developing countries. They show that transparency has absolute limits because of the lack of adequate enforcement and argue that adequate enforcement may be predicated on broader reforms in the public sector.
Principles of Financial Regulation : A Dynamic Portfolio Approach
(Washington, DC: World Bank, 2001-04) Stiglitz, Joseph E.
Economists seeking explanations for the global financial crisis of 1997-99 are reaching consensus that a major factor was weak financial institutions, which resulted in part from inadequate government regulations. At the same time many developing countries are struggling with an overregulated financial system-one that stifles innovation and the flow of credit to new entrepreneurs and that can stunt the growth of well-established firms. In particular, too many countries are relying excessively on capital adequacy standards, which are inefficient and sometimes counterproductive. The author argues that financial systems can be reformed successfully using a 'dynamic portfolio approach' aimed at managing the incentives and constraints that affect not only financial institutions exposure to risk but also their ability to cope with it. The article sets out general principles of financial regulation and shows how the dynamic portfolio approach can help countries deal with the special problems that arise during the transition to a more liberalized economy as well as those that arise in dealing with a financial crisis similar to the 1997 crisis in East Asia.