Mutual Funds and Institutional Investments: What is the Most Efficient Way to Set Up Individual Accounts in a Social Security System?

One of the biggest criticisms leveled at defined contribution individual account (IA) components of social security systems is that they are too expensive. This paper investigates the cost-effectiveness of three options for constructing funded social security pillars: 1) IA's invested in the retail market with relatively open choice, 2) IA's invested in the institutional market with constrained choice among investment companies, and 3) a centralized fund without individual accounts or differentiated investments across individuals. Our questions: What is the most cost-effective way to organize a mandatory IA system, how does the cost of an efficient IA system compare with that of a single centralized fund, and are the cost differentials large enough to outweigh the other important considerations? Our answers, based on empirical evidence about mutual and institutional funds in the U.S.: The retail market (option 1) allows individual investors to benefit from scale economies in asset management, but at the cost of high marketing expenses that are needed to attract and aggregate small sums of money into large pools. In contrast, a centralized fund (option 3) can be much cheaper because it achieves scale economies without high marketing costs, but gives workers no choice and hence is subject to political manipulation and misallocation of capital. Mandatory IA systems can be structured to get the best of both worlds: to obtain scale economies in asset management without incurring high marketing costs or sacrificing worker choice. To accomplish this requires centralized collections, a modest level of investor service and constrained choice. The system of constrained choice described in this paper (option 2) is much cheaper than the retail market and only slightly more expensive than a single centralized fund. We estimate that it will cost only .14-.18% of assets annually. These large administrative cost savings imply a Pareto improvement so long as choice is not constrained too much.'

Mutual funds and institutional investments - what is the most efficient way to set up individual accounts in a social security system?

One of the main criticisms of the defined-contribution, individual-account components of social security systems is that they are too expensive. The authors investigate the cost-effectiveness of three options for constructing funded social security pillars: * Individual accounts invested in the retail market with relatively open choice. * Individual accounts invested in the institutional market with constrained choice among investment companies. * A centralized fund without individual accounts or differentiated investments across individuals. The authors asked several questions: What is the most cost-effective way to organize a system with mandatory individual accounts? How does the cost of an efficient individual account system compare with that of a single centralized fund? And are the cost differentials great enough to outweigh other important considerations? The authors concentrate on countries with well-functioning financial markets, such as the United States, but make comparative references to developing countries. Based on empirical evidence about U.S. mutual and institutional funds, the authors found that the retail market (option 1) allows individual investors to benefit from scale economics in asset management - but atthe cost of the high marketing expenses needed to attract large pools of small investments. By contrast, a centralized fund (option 3) can be much cheaper because it achieves scale economies without high marketing costs. But it gives workers no choice and is subject to political manipulation and misallocation of capital. The system of constrained choice (option 2) is much cheaper than the retail option and only slightly more expensive than a single centralized fund. It allows scale economies in asset management and record-keeping while incurring low marketing costs and allowing significant worker choice. It is also more effectively insulated from political interference than a single centralized fund. The authors estimate that option 2 would cost only 0.14 percent-0.18 percent of assets annually. Such large administrative cost savings imply a Pareto improvement - so long as choice is not constrained"too much".Payment Systems&Infrastructure,Business Environment,International Terrorism&Counterterrorism,Economic Theory&Research,Agricultural Knowledge&Information Systems,International Terrorism&Counterterrorism,Economic Theory&Research,Business Environment,Business in Development,Agricultural Knowledge&Information Systems

Technological Convergence: a Strategic Perspective

The information and communication technologies (ICT) sectors are in a process of technological convergence. Determinant factors in this process are the liberalisation of the telecommunications markets and technological change. Many firms are engaged in a process of mergers and alliances to position themselves in this new framework. Technological and demand uncertainties are very important. Our objective in this paper is to study the economic determinants of the strategies of the firms. With this aim, we review some key technological and demand aspects. We shed some light on the strategic motivations of the firms by establishing a parallel with the evolution of the retailing sector.Technological Convergence; Demand Uncertainty; technological Uncertainty; Technology Life Cycle; Internet; Multimedia; Strategy

E-Finance: An Introduction

" Franklin Allen, James McAndrews and Philip Strahan, October 2001 Abstract: E-finance is defined as "The provision of financial services and markets using electronic communication and computation". In this paper we outline research issues related to e-finance that we believe set the stage for further work in this field. Three areas are focused on. These are the use of electronic payments sys tems, the operations of financial services firms and the operation of financial markets. A number of research issues are raised. For example, is the widespread use of paper-based checks efficient? Will the financial services industry be fundamentally changed by the advent of the internet? Why have there been such large differences in changes to market microstructure across different financial markets?

Boom and bust in telecommunications

Telecommunication

Infrastructure networks and the competitiveness of the economy

This paper aims to examine how technical infrastructure networks may contribute to improving the competitiveness of the Hungarian economy. Consequently, our main question will be to establish how certain networks or sectors can promote competitiveness of the entire economy rather than how they could be more competitive in their own field. In the macroeconomic or regional sense competitiveness is interpreted as the entirety of safeguards and preconditions that provide a long term basis for success in a competitive market environment. The review of the economic, social, institutional and facility preconditions of competitiveness has highlighted that practically every component must be backed by a good system of relations: both strong, balanced internal relations promoting co-operation and external relations to assure outward linkages. Despite the above correlation, it would be a fallacy to assume that infrastructure networks as linking elements in general are factors per se improving competitiveness. In accordance with the level of development of the economy, the key forms of activity and the realistically attainable objectives, different linkages and service needs become key for the development of the economy in different stages