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) Kaufmann, Daniel; Vishwanath, Tara
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.