Social protection as social risk management : conceptual underpinnings for the social protection sector strategy paper

This report serves as a conceptual background piece for the development of the Social Strategy Paper (SSP). To develop the conceptual underpinnings, the objectives and instruments of strategy papers (SP) are viewed under the rubric of Social Risk Management (SRM). SRM consists of public measures intended to assist individuals, households, and communities in managing income risks in order to reduce vulnerability, improve consumption smoothing, and enhance equity while contributing to economic development in a participatory manner. To support the approach and its logic, the structure of this note is as follows: Chapter 2 sets the stage and presents global trends, definitions, and outlooks. Chapter 3 presents key issues of SRM, from the reasons for World Bank concern to a typology of strategies and instruments, and ends with the role of the main actors. Chapter 4 focuses on the boundaries of SP/SRM and on three key policy issues to balance equity, efficiency, and political sustainability. Chapter 5 ends with preliminary list of ways in which the new framework may affect our view of SP and the development of better instruments.Environmental Economics&Policies,Health Economics&Finance,Banks&Banking Reform,Social Risk Management,Rural Poverty Reduction

Dynamic markets for lemons: performance, liquidity, and policy intervention

We study nonstationary dynamic decentralized markets with adverse selection in which trade is bilateral and prices are determined by bargaining. Examples include labor markets, housing markets, and markets for financial assets. We characterize equilibrium, and identify the dynamics of transaction prices, trading patterns, and the average quality in the market. When the horizon is finite, the surplus in the unique equilibrium exceeds the competitive surplus; as traders become perfectly patient, the market becomes completely illiquid at all but the first and last dates, but the surplus remains above the competitive surplus. When the horizon is infinite, the surplus realized equals the static competitive surplus. We study policies aimed at improving market performance, and show that subsidies to low quality or to trades at a low price, taxes on high quality, restrictions on trading opportunities, or government purchases may raise the surplus. In contrast, interventions like the Public-Private Investment Program for Legacy Assets reduce the surplus when traders are patient.We gratefully ac-knowledge financial support from the Spanish Ministry of Science and Innovation, Grant ECO2011-29762.Wooders is grateful for financial support from the Australian Research Council’s Discovery Projects fundingscheme (project number DP140103566)

Social risk management : a new conceptual framework for social protection and beyond

This paper proposes a new definition, and conceptual framework for social protection, grounded in social risk management. The concept repositions the traditional areas of social protection (labor market intervention, social insurance, and social safety nets) in a framework that includes three strategies to deal with risk (prevention, mitigation, and coping), three levels of formality of risk management (informal, market-based, public), and, many actors (individuals, households, communities, non-governmental organizations, governments at various levels, and international organizations) against the background of asymmetric information, and different types of risk. This expanded view of social protection emphasizes the double role of risk management instruments - protecting basic livelihood, as well aspromoting risk taking. It focuses specifically on the poor, since they are the most vulnerable to risk, and typically lack appropriate risk management instruments, which constrains them from engaging in riskier, but also higher return activities, and hence gradually moving out of chronic poverty.Environmental Economics&Policies,Health Economics&Finance,Insurance&Risk Mitigation,Social Risk Management,Banks&Banking Reform

Summer workshop on money, banking, payments and finance: an overview

The 2010 Summer Workshop on Money, Banking, Payments and Finance met at the Federal Reserve Bank of Chicago this summer, for the second year. The following document summarizes and ties together the papers presented.Payment systems

UDROP: A Small Contribution to the International Financial Architecture

The purpose of the UDROP proposal is to prevent debt rollover crises for foreign-currency-enominated debt instruments. For such liabilities, there is no international analogue to the domestic lender of last resort or to domestic deposit insurance. UDROP stands for Universal Debt Rollover Option with a Penalty. Our proposal is that all foreign currency liabilities should have a rollover option attached to them. The 'pure' version of the option would entitle the borrower to extend or roll over his performing debt at maturity for a specified period. The pricing of the option would be left to the contracting parties. A number of variants on the basic version are also considered. These make the individual borrower's ability to exercise his option contingent on the prior declaration of a state of 'disorderly markets', by the national central bank, the International Monetary Fund or an indicator of 'disorderly markets'. All versions of the scheme have the property that no commitment of public money is required, either by national governments or by international agencies such as the International Monetary Fund or the World Bank. The UDROP proposal is rule based and general: it is mandatory for all foreign-currency debt and automatic. That is, it is exercised at the discretion of the borrower. This stands in sharp contrast to the current practice of discretionary and politicised refinancing arrangements cobbled together in an ad-hoc manner on a case-by-case basis by the International Monetary Fund. UDROP is market-oriented: the terms and conditions on any foreign-currency loan and associated rollover option would be negotiated by the lenders and borrowers.

"Cost Effective Conservation Planning: Twenty Lessons from Economics"

Economists advocate that the billions of public dollars spent on conservation should be allocated to achieve the largest possible social benefit. This is what we term “cost-effective conservation”-- a process that incorporates both benefits and costs that are measured with money. This controversial proposition has been poorly understood and not implemented by conservation planners. Drawing from evidence from the largest conservation programs in the United States, this paper seeks to improve the communication between economists and planners and overcome resistance to cost-effective conservation by addressing the open questions that likely drive skepticism among non-economists and by identifying best practices for project selection. We first delineate project-selection strategies and compare them to optimization. Then we synthesize the body of established research findings from economics into 20 practical lessons. Based on theory, policy considerations, and empirical evidence, these lessons illustrate the potential gains from improving practices related to cost-effective selection and also address how to overcome landowner-incentive challenges that face programs.conservation planning, cost-effectiveness, nonmarket valuation, benefit cost targeting, optimization, prioritization

Trading dynamics in decentralized markets with adverse selection

The authors study a dynamic, decentralized lemons market with one-time entry and characterize its set of non-stationary equilibria. This framework offers a theory of how a market suffering from adverse selection recovers over time endogenously; given an initial fraction of lemons, the model provides sharp predictions about how prices and the composition of assets evolve over time. Comparing economies in which the initial fraction of lemons varies, the authors study the relationship between the severity of the lemons problem and market liquidity. They use this framework to understand how asymmetric information contributed to the breakdown in trade of asset-backed securities during the recent financial crisis, and to evaluate the efficacy of one policy that was implemented in attempt to restore liquidity.Liquidity (Economics) ; Trade