Systemic risk in the financial sector; a review and synthesis

In a financial crisis, an initial shock gets amplified while it propagates to other financial intermediaries, ultimately disrupting the financial sector. We review the literature on such amplification mechanisms, which create externalities from risk taking. We distinguish between two classes of mechanisms: contagion within the financial sector and pro-cyclical connection between the financial sector and the real economy. Regulation can diminish systemic risk by reducing these externalities. However, regulation of systemic risk faces several problems. First, systemic risk and its costs are difficult to quantify. Second, banks have strong incentives to evade regulation meant to reduce systemic risk. Third, regulators are prone to forbearance. Finally, the inability of governments to commit not to bail out systemic institutions creates moral hazard and reduces the market’s incentive to price systemic risk. Strengthening market discipline can play an important role in addressing these problems, because it reduces the scope for regulatory forbearance, does not rely on complex information requirements, and is difficult to manipulate.

Managerial Power and Rent Extraction in the Design of Executive Compensation

This paper develops an account of the role and significance of managerial power and rent extraction in executive compensation. Under the optimal contracting approach to executive compensation, which has dominated academic re-search on the subject, pay arrangements are set by a board of directors that aims to maximize shareholder value. In contrast, the managerial power approach suggests that boards do not operate at arm's length in devising executive compensation arrangements; rather, executives have power to influence their own pay, and they use that power to extract rents. Furthermore, the desire to camouflage rent extraction might lead to the use of inefficient pay arrangements that provide suboptimal incentives and thereby hurt shareholder value. The authors show that the processes that produce compensation arrangements, and the various market forces and constraints that act on these processes, leave managers with considerable power to shape their own pay arrangements. Examining the large body of empirical work on executive compensation, the authors show that managerial power and the desire to camouflage rents can explain significant features of the executive compensation landscape, including ones that have long been viewed as puzzling or problematic from the optimal contracting perspective. The authors conclude that the role managerial power plays in the design of executive compensation is significant and should be taken into account in any examination of executive pay arrangements or of corporate governance generally.

A framework for the analysis of mineral tax policy in sub-Saharan Africa

Given the dual role played by the Government as resource owner and tax collector in many sub - Saharan economies, it is important to separate"resource factor payments"from taxes through the use of different instruments. The instruments to be considered are: (1) a factor payment system that includes"ad rem"or"ad valorem"royalties. Production sharing, resource rent schemes, and fixed fees could also be used, but some form of unit payment is necessary and justified, because natural resources in the ground are inputs into the production process; (2) a cash flow and withholding tax system initially for the mineral sectors and eventually for other sectors of the economy. The cash flow tax would capture a share of the"economic rent"from each sector and be neutral across sectors; and (3) a depletion account to preserve the nations capital stock. Natural resources are part of an economy's capital stock, which will fall unless"replacement investment"is made as the resource is depleted.Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Public Sector Economics&Finance,Health Economics&Finance

Working-Land Conservation Structures: Evidence on Program and Non-Program Participants

In recent years, the Federal government has placed more emphasis on working-land conservation programs. Farmers can be reimbursed for adopting certain conservation practices, such as the installation of in-field or perimeter conservation structures, to enhance water quality and soil productivity. In an effort to better understand the relationships between operator motivations, program incentives, and the environmental benefits of conservation programs, a multi-agency survey, the Conservation Effects Assessment Project-Agricultural Resources Management Survey (CEAP-ARMS), was conducted in 2004 across 16 states representing more than one-million farmers growing wheat. The nationally representative survey integrates Natural Resources Inventory (NRI) data on field-level physical characteristics, program information, farm-level costs of production, and farm household information. This objective of this paper is twofold. First, using the CEAP-ARMS, farm structure, household, and operator characteristics of farmers participating in one or more conservation programs are compared with farmers not participating in a conservation program. Second, an impact model is specified to test whether program participants allocated more acres to in-field or perimeter conservation structures than nonparticipants, holding other factors constant. Evidence suggests that program participants allocate more field acres to vegetative conservation structures than nonparticipants with in-field or perimeter conservation structures.Environmental Economics and Policy,

Export liberalization and the outward oriented trade regime

The purpose of this essay is to re-assess the case of outward- oriented trade regimes in the process of economic development. The nature of outward-orientation is briefly explained in the next section. As developing countries usually start their industrialization through import substitution strategies, the shift from an inward- to an outward-oriented trade regime raises questions concerning the set of economic policies to be reshaped, the timing of the policy reform, and the feasibility of such changes, which all are discussed in the third section. The fourth section provides evidence on successful as well as on unsuccessful liberalization attempts undertaken in the seventies and traces the causes for success or failure by relating the country experiences to the policy framework for export liberalization outlined in the previous section. In the fifth section, the revival of export pessimism is evaluated.

Specific Experience, Household Structure and Intergenerational Transfers: Farm Family Land and Labor Arrangements in Developing Countries

Land Economics/Use,

State-Owned Enterprise Reform

This United Nations Policy Note on State-Owned Enterprise Reform provides practical guidance on alternative policies to reform SOEs and manage natural resource rents. This Policy Note has been developed in cooperation with UN agencies, and has been officially reviewed by distinguished academics/ development specialists such as Jose Antonio Ocampo, Jomo K.S. and Nobel Laureate Joseph Stiglitz.state-owned enterprises, management natural resource rents, development planning

¿Cómo se deberían estructurar las instituciones y los mercados financieros? Análisis y opciones de diseño de sistemas financieros

(Disponible en idioma inglés únicamente) En este trabajo se analizan las consecuencias de estructuras financieras alternativas para la eficiencia y la estabilidad financieras. La atención se centra en la estructura organizativa de los bancos. Las estructuras bancarias alternativas varían desde bancos especializados de ámbito restringido hasta bancos universales de ámbito mucho más amplio. Cada estructura bancaria se evalúa según su capacidad de satisfacer los objetivos de eficiencia y estabilidad en la estabilidad del sistema financieros, las economías de escala y alcance, la competencia, evitar los excesos regulatorios, los conflictos de intereses y la manipulación política, el control empresarial y la gestión de crisis financieras, y el control monetario. Ninguna reforma sirve para todos los países por igual y ninguna reforma garantiza por sí sola el logro o el mantenimiento de los objetivos.

Analysis of a Re-Focused Agricultural Policy within a Farm-Household Framework Some Data Requirements

Agricultural and Food Policy, Consumer/Household Economics,