Publication: Incentive Compatible Reforms : The Political Economy of Public Investments in Mongolia
Loading...
Date
2011-05-01
ISSN
Published
2011-05-01
Author(s)
Editor(s)
Abstract
Why do politicians distort public investments? And given that public investments are poor because presumably that is what is politically rational, what types of reforms are likely to be both efficiency improving and compatible with the interests of politicians? This paper explores these two questions in the context of Mongolia. It argues that Mongolian members of parliament have an incentive to over-spend on smaller projects that bring benefits to specific geographical localities and to under-spend on large infrastructure that would bring economic benefits to Mongolia on the whole. The incentive for the former is that members of parliament internalize the political benefits from the provision of particular, targeted benefits to specific communities. The disincentive for the latter is that large infrastructure carries a political risk because the political faction in control of that particular ministry would have access to huge rents and become politically too powerful. The identity of these "winners" is uncertain ex ante, given the relatively egalitarian and ethnically homogenous nature of Mongolia's society and polity. Anticipating this risk, members of parliament are reluctant to fund these projects. Since these large infrastructure projects are crucial for national growth, neglecting them hurts all members of parliament. Members of parliament will therefore support reforms that collectively tie their hands by safeguarding large, strategic investment projects from political interference thereby ensuring that no political faction becomes too powerful. This protection of mega-projects would need to be part of a bargain that also allows geographical targeting of some percentage of the capital budget.
Link to Data Set
Citation
“Hasnain, Zahid. 2011. Incentive Compatible Reforms : The Political Economy of Public Investments in Mongolia. Policy Research working paper ; no. WPS 5667. © World Bank. http://hdl.handle.net/10986/3430 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Intergenerational Income Mobility around the World(Washington, DC: World Bank, 2025-07-09)This paper introduces a new global database with estimates of intergenerational income mobility for 87 countries, covering 84 percent of the world’s population. This marks a notable expansion of the cross-country evidence base on income mobility, particularly among low- and middle-income countries. The estimates indicate that the negative association between income mobility and inequality (known as the Great Gatsby Curve) continues to hold across this wider range of countries. The database also reveals a positive association between income mobility and national income per capita, suggesting that countries achieve higher levels of intergenerational mobility as they grow richer.Publication The Future of Poverty(Washington, DC: World Bank, 2025-07-15)Climate change is increasingly acknowledged as a critical issue with far-reaching socioeconomic implications that extend well beyond environmental concerns. Among the most pressing challenges is its impact on global poverty. This paper projects the potential impacts of unmitigated climate change on global poverty rates between 2023 and 2050. Building on a study that provided a detailed analysis of how temperature changes affect economic productivity, this paper integrates those findings with binned data from 217 countries, sourced from the World Bank’s Poverty and Inequality Platform. By simulating poverty rates and the number of poor under two climate change scenarios, the paper uncovers some alarming trends. One of the primary findings is that the number of people living in extreme poverty worldwide could be nearly doubled due to climate change. In all scenarios, Sub-Saharan Africa is projected to bear the brunt, contributing the largest number of poor people, with estimates ranging between 40.5 million and 73.5 million by 2050. Another significant finding is the disproportionate impact of inequality on poverty. Even small increases in inequality can lead to substantial rises in poverty levels. For instance, if every country’s Gini coefficient increases by just 1 percent between 2022 and 2050, an additional 8.8 million people could be pushed below the international poverty line by 2050. In a more extreme scenario, where every country’s Gini coefficient increases by 10 percent between 2022 and 2050, the number of people falling into poverty could rise by an additional 148.8 million relative to the baseline scenario. These findings underscore the urgent need for comprehensive climate policies that not only mitigate environmental impacts but also address socioeconomic vulnerabilities.Publication Engineering Ukraine’s Wirtschaftswunder(Washington, DC: World Bank, 2025-07-29)As Ukraine emerges from the devastation of war, it faces a historic opportunity to engineer its own Wirtschaftswunder—a productivity-driven economic transformation akin to post-war West Germany. While investment-led growth may offer quick wins, it is efficiency, innovation, and institutional reform that will determine Ukraine’s long-term economic trajectory. Drawing on rich micro-level firm data spanning 25 years, this paper uncovers deep structural distortions that have suppressed creative destruction and productivity in Ukraine. It finds that business dynamism is on the decline, alongside rising market concentration among incumbent businesses, including low productivity state owned enterprises. To inform priorities for reviving business dynamism, this study develops a model of creative destruction drawing on Acemoglu et al. (2018) and Akcigit et al. (2021). The quantitative assessment highlights that policies that discipline entrenched incumbents are the bedrock for reviving business dynamism and engineer Ukraine’s Wirtschaftswunder. Policies targeting specific types of firms have limited efficacy when incumbents run wild.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Disentangling the Key Economic Channels through Which Infrastructure Affects Jobs(Washington, DC: World Bank, 2025-04-03)This paper takes stock of the literature on infrastructure and jobs published since the early 2000s, using a conceptual framework to identify the key channels through which different types of infrastructure impact jobs. Where relevant, it highlights the different approaches and findings in the cases of energy, digital, and transport infrastructure. Overall, the literature review provides strong evidence of infrastructure’s positive impact on employment, particularly for women. In the case of electricity, this impact arises from freeing time that would otherwise be spent on household tasks. Similarly, digital infrastructure, particularly mobile phone coverage, has demonstrated positive labor market effects, often driven by private sector investments rather than large public expenditures, which are typically required for other large-scale infrastructure projects. The evidence on structural transformation is also positive, with some notable exceptions, such as studies that find no significant impact on structural transformation in rural India in the cases of electricity and roads. Even with better market connections, remote areas may continue to lack economic opportunities, due to the absence of agglomeration economies and complementary inputs such as human capital. Accordingly, reducing transport costs alone may not be sufficient to drive economic transformation in rural areas. The spatial dimension of transformation is particularly relevant for transport, both internationally—by enhancing trade integration—and within countries, where economic development tends to drive firms and jobs toward urban centers, benefitting from economies scale and network effects. Turning to organizational transformation, evidence on skill bias in developing countries is more mixed than in developed countries and may vary considerably by context. Further research, especially on the possible reasons explaining the differences between developed and developing economies, is needed.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Mongolia : The Political Economy of the Resource Paradox, Synthesis Note(Washington, DC, 2009-09)This report discusses Mongolia's increasing dependence on mining revenues and the associated vulnerability to boom and bust economic cycles, and calls for special attention to governance in mining resource management. It seeks to identify can be learned from the experiences of other mineral dependent countries that have succeeded in converting their mineral endowment into broadly shared growth, as well as from those that have not. A challenge for the Bank is to be able to formulate good reform solutions which fit the country's' implementation capacity, and are flexible enough to respond to changing country dynamics. The Bank could modify its support better correspond to Mongolia's realities, such as taking into account concerns that by entering into an investment agreement, the government will lose the ability to influence or veto decisions that negatively impact national security. The report looks at the Public Investment Program, focusing on the principles of development oriented investments, and what this would imply across sectors, by taking into account the policymaker's concern that public procurement of public investment projects must disburse quickly, so that procurement efficiency is improved.Publication Parliaments as Peacebuilders in Conflict-Affected Countries(2008)The role of parliament in conflict-affected countries becomes even more evident when the correlation between poverty and conflict is considered. This book is pioneering in that it considers what parliaments in conflict-affected countries can do, while performing their normal everyday functions, to not only contribute directly to conflict prevention but also aid peace building by combating poverty. By addressing issues of poverty, equitable distribution of resources, and economic development, parliamentarians can attempt to guard against the creation of an enabling environment that is prone to the escalation of conflict. In line with their respective missions, the World Bank Institute and the Commonwealth Parliamentary Association have examined issues facing parliamentary development in the hope of strengthening parliaments' capacity to tackle the diverse challenges they face. Among those challenges is meeting growing community expectations of the contribution parliaments make to resolving important issues and addressing community demands. In recognition of the rising number of parliaments that are operating in conflict-affected societies, the World Bank Institute has sought to better understand the challenges faced by parliaments in conflict-affected countries and the role parliaments can play in conflict management and poverty alleviation.Publication Jamaica : Parliamentary Oversight of Public Finances--An Institutional Review(Washington, DC, 2013-06-10)Sound legislative oversight of public finances is crucial to ensure efficiency and effectiveness of public spending. All national governments, and particularly those that are accountable to their citizens through free elections and the voice of civil society, are concerned with the efficiency and efficacy of public finances. More broadly, well-functioning parliaments promote good governance; enhance transparency and accountability, including for public expenditures and their results; widen public discourse on national priorities and options; and build better partnerships between officials and representatives and their electorate. In all this, those among the citizenry with the least have the most to gain. This report responds to a request from the Government of Jamaica to review the structure and capacity of the Parliament of Jamaica to undertake its constitutional role with respect to oversight of the nation's public finances. Jamaica's Parliament is the country's supreme legislative body, consisting of an elected House of Representatives and an appointed Senate (Upper House), as well as the Queen or her representative, as the ceremonial head, and the Governor General. The Government of Jamaica has amended various legislations to adopt a Fiscal Responsibility Framework (FRF). The FRF includes specific fiscal targets as well as provisions to include the Ministry of Finance (MOF) and public service control over expenditures and lending.Publication Electoral Accountability, Fiscal Decentralization and Service Delivery in Indonesia(2011-03-01)This paper takes advantage of the exogenous phasing of direct elections in districts and applies the double difference estimator to: (i) measure impacts on the pattern of public spending and revenue generation at the district level; and (ii) investigate the heterogeneity of the impacts on public spending. The authors confirm that the electoral reforms had positive effects on district expenditures and these effects were mainly due to the increases in expenditures in the districts outside Java and Bali and the changes in expenditures brought about by non-incumbents elected in the districts. Electoral reforms also led to higher revenue generation from own sources and to higher budget surplus. Finally, the analysis finds that in anticipation of the forthcoming direct elections, district governments tend to have higher current expenditures on public works.Publication Political Leadership and Economic Reform(World Bank, Washington, DC, 2008)Brazil grew 2.4 percent per year on average in the last 25 years-somewhat less than Latin America, a good deal less than the world, far less than the emerging countries of Asia in the same period, and indeed far less than Brazil itself in previous decades. If anything stands out favorably in recent Brazilian experience, it is not growth but stabilization and the successful opening of the economy. The purpose of this paper is more modest. It is limited to setting out the authors' particular view of recent efforts to consolidate democracy in Brazil while controlling inflation and resuming economic growth. At the same time the paper presents, as objectively as possible, some thoughts on the limits but also the relevance of action by political leaders to set a course and circumvent obstacles to that process. Here and there, the paper refers to the experiences of other Latin American countries, especially Argentina, Chile, and Mexico, not to offer a full fledged comparative analysis but merely to note contrasts and similarities that may shed light on the peculiarities of the Brazilian case and suggest themes for a more wide-ranging exchange of views.
Users also downloaded
Showing related downloaded files
Publication MIGA Annual Report 2021(Washington, DC: Multilateral Investment Guarantee Agency, 2021-10-01)In FY21, MIGA issued 5.2 billion US Dollars in new guarantees across 40 projects. These projects are expected to provide 784,000 people with new or improved electricity service, create over 14,000 jobs, generate over 362 million US Dollars in taxes for the host countries, and enable about 1.3 billion US Dollars in loans to businesses—critical as countries around the world work to keep their economies afloat. Of the 40 projects supported during FY21, 85 percent addressed at least one of the strategic priority areas, namely, IDA-eligible countries (lower-income), fragile and conflict affected situations (FCS), and climate finance. As of June 2021, MIGA has also issued 5.6 billion US Dollars of guarantees through our COVID-19 Response Program and anticipate an expansion to 10–12 billion US Dollars over the coming years, a testament to the countercyclical role that MIGA can play in mobilizing private investment in the face of the pandemic. A member of the World Bank Group, MIGA is committed to strong development impact and promoting projects that are economically, environmentally, and socially sustainable. MIGA helps investors mitigate the risks of restrictions on currency conversion and transfer, breach of contract by governments, expropriation, and war and civil disturbance, as well as offering credit enhancement on sovereign obligations.Publication Business Ready 2024(Washington, DC: World Bank, 2024-10-03)Business Ready (B-READY) is a new World Bank Group corporate flagship report that evaluates the business and investment climate worldwide. It replaces and improves upon the Doing Business project. B-READY provides a comprehensive data set and description of the factors that strengthen the private sector, not only by advancing the interests of individual firms but also by elevating the interests of workers, consumers, potential new enterprises, and the natural environment. This 2024 report introduces a new analytical framework that benchmarks economies based on three pillars: Regulatory Framework, Public Services, and Operational Efficiency. The analysis centers on 10 topics essential for private sector development that correspond to various stages of the life cycle of a firm. The report also offers insights into three cross-cutting themes that are relevant for modern economies: digital adoption, environmental sustainability, and gender. B-READY draws on a robust data collection process that includes specially tailored expert questionnaires and firm-level surveys. The 2024 report, which covers 50 economies, serves as the first in a series that will expand in geographical coverage and refine its methodology over time, supporting reform advocacy, policy guidance, and further analysis and research.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.