Improving the dynamics of aid : towards more predictable budget support

This paper considers approaches towards improving the predictability of aid to low income countries, with a special focus on budget support. In order to accelerate progress towards the Millennium Development Goals, the donor community is increasing aid flows while pushing for more coordination and tighter performance-based selectivity. However, these factors may increase the unpredictability of aid from current levels, which are already high enough to impose significant costs. Predictability is a particular challenge in the area of budget support, which will continue to increase in importance as aid is sought to underpin longer-term recurrent spending commitments. Budget support reduces transactions costs and drains on capacity, but it tends to be more vulnerable to fluctuations than multi-year project support. Poor predictability raises the threat of a low-level equilibrium: countries, budgeting prudently within a medium-term fiscal framework, will discount commitments; donors will see few funding gaps, so pledges will fall. With some countries discounting aid commitments in formulating budgets, some already see signs of this happening. To improve predictability, donors must extend their funding horizons. However, even if this can be done, several major issues will remainat country level. First, how can countries deal with residual short-run volatility of disbursements relative to commitments? Second, can donors lengthen commitment horizons to individual developing countries without excessive risk of misallocating aid? Third, within a country's overall aid envelope, how should donors set the shares of project aid and budget support? Finally, the paper considers the other main approach to budget support, the output or outcome-driven approach of the European Union. The paper concludes that many of these issues can be addressed. Simple spending and savings rules built around a buffer reserve fund of 2-4 months of imports can help smooth public spending. Aid can be pre-committed several years ahead with only small efficiency losses, using a strategy of"flexible pre-commitment."Guidelines can be set to limit the volatility of budget support while keeping it performance-based, and past experience can be used more systematically to develop"outcome"norms to better guide aid allocation.Development Economics&Aid Effectiveness,School Health,Economic Theory&Research,Markets and Market Access,Country Strategy&Performance

Policy design in a model with swings in risk appetite

This paper studies the policy implications of habits and cyclical changes in agents' appetite for risk-taking. To do so, it analyses the non-linear solution of a New Keynesian (NK) model, in which slow-moving habits help match the cyclical properties of risk-premia. Our findings suggest that the presence of habits and swings in risk appetite can materially affect policy prescriptions. As in Ljungqvist and Uhlig (2000), a counter-cyclical fiscal instrument can eliminate habit-related externalities. Alternatively, monetary policy can partially curb the associated overconsumption by responding to risk premia. Specifically, periods in which risk premia are elevated (compressed) merit a looser (tighter) policy stance. However, the associated welfare gains appear quantitatively small

Climate Change and the Stability of Water Allocation Agreements

We analyse agreements on river water allocation between riparian countries. Besides being efficient, water allocation agreements need to be stable in order to be effective in increasing the efficiency of water use. In this paper we assess the stability of water allocation agreements using a game theoretic model. We consider the effects of climate change and the choice of a sharing rule on stability. Our results show that a decrease in mean river flow decreases the stability of an agreement, while an increased variance can have a positive or a negative effect on stability. An agreement where the downstream country is allocated a fixed amount of water has the lowest stability compared to other sharing rules. These results hold for both constant and flexible non-water transfer

HAVE INCENTIVE BASED POLICIES BEEN OVERSOLD?

Comparisons of alternative pollution control instruments over the past thirty years show quite disparate results for seemingly comparable situations. This research demonstrates how the magnitude of the estimated cost savings associated with incentive-based instruments is influenced by two important factors: (i) separability assumptions between emissions and output, and (ii) participation criteria.Environmental Economics and Policy,

Opening the Capital Account of Transition Economies: How Much and How Fast

In the late eighties, many developing countries followed the example of the most advanced countries and opened their capital account (K.A.) in an attempt to reap new gains from increased integration with the world economy. By 2000, after the wave of financial and currency crises that hurt the global economy in the last decade, enthusiasm about K.A. liberalization has much faded. Firstly, the relationship between development and capital account liberalization did not come out to be as solid as initially expected; secondly, greater capital mobility has brought about increased global financial instability. New thinking in international economics calls for proper sequencing in opening the K.A.: liberalization should proceed in step with progress in macroeconomic stability, structural reform and creation of a sound internal financial system. In this paper, we analyze to what extent and at what pace should transition economies carry out the K.A. liberalization process.http://deepblue.lib.umich.edu/bitstream/2027.42/39896/3/wp511.pd

An incremental database access method for autonomous interoperable databases

We investigated a number of design and performance issues of interoperable database management systems (DBMS's). The major results of our investigation were obtained in the areas of client-server database architectures for heterogeneous DBMS's, incremental computation models, buffer management techniques, and query optimization. We finished a prototype of an advanced client-server workstation-based DBMS which allows access to multiple heterogeneous commercial DBMS's. Experiments and simulations were then run to compare its performance with the standard client-server architectures. The focus of this research was on adaptive optimization methods of heterogeneous database systems. Adaptive buffer management accounts for the random and object-oriented access methods for which no known characterization of the access patterns exists. Adaptive query optimization means that value distributions and selectives, which play the most significant role in query plan evaluation, are continuously refined to reflect the actual values as opposed to static ones that are computed off-line. Query feedback is a concept that was first introduced to the literature by our group. We employed query feedback for both adaptive buffer management and for computing value distributions and selectivities. For adaptive buffer management, we use the page faults of prior executions to achieve more 'informed' management decisions. For the estimation of the distributions of the selectivities, we use curve-fitting techniques, such as least squares and splines, for regressing on these values

The Welfare Gains from Stabilization in a Stochastically Growing Economy with Idiosyncratic Shocks and Flexible Labor Supply

Stochastic models with economy-wide shocks imply that the welfare costs of aggregate volatility are negligible. In reality idiosyncratic shocks are important, and empirical evidence suggests that their volatility is several times that of aggregate shocks. This paper introduces both types of shocks. We find that if in the process of eliminating aggregate risk the policymaker can reduce idiosyncratic risk by a modest amount, in accordance with available empirical evidence, the welfare gains from aggregate stabilization can become significant. The introduction of idiosyncratic risk has important implications for asset pricing, and in particular may reduce the risk-free rate substantially, through the precautionary savings motive. Many of our results are sensitive both to the degree of risk aversion, and to the flexibility of labor supply. The paper highlights the tradeoffs involved in analyzing the effects of risk on growth and welfare, on the one hand, and on asset pricing, on the other, clarifying the need to examine these issues within a unified stochastic general equilibrium framework.

A Spatial-Intertemporal Model for Tropical Forest Management Applied to Khao Yai National Park, Thailand

This paper discusses the application of a spatial-intertemporal model for tropical forest management to Khao Yai National Park in Thailand. This type of model, especially the spatial components, finds different optimal land allocations than do traditional models at empirically relevant levels of benefits. The spatial analysis here suggests that most of this park can be best used as a preserved area and also provides support for expanding the park into an adjacent unpopulated area. The analysis demonstrates that the park’s benefits to regional agriculture and villagers are large enough that preservation can proceed without international support, and that local people, as a group, have incentives to maintain most of the area as preserved land. Although the data cannot support a full case-study, these results underscore the need for empirical assessment of the spatial aspects of protected area management.parks, protected areas, people-park conflict, spatial, biodiversity, option value