Nine ideas to strengthen our global firepower against COVID-19

The IMF and World Bank have begun to tackle the global emergency. But they need to do far more. Erik Berglof (LSE) proposes nine ways in which governments can ensure that international financial institutions have sufficient resources

The Changing Corporate Governance Paradigm : Implications for Transition and Developing Countries

The rapidly growing literature studying the relationship between legal origin, investor protection, and finance has stimulated an important debate in academic circles. It has also generated a number of applied research projects and strong policy statements. This paper discusses the implications, in particular for developing and transition countries, from this literature. We conclude that its focus on the plight of small investors is too narrow when applied to these countries. We argue that this group is unlikely to play an important role in most developing and transition countries. External investors may still be crucial, but they are more likely to come in as strategic investors or creditors. The paper also proposes a broader paradigm including other stakeholders and mechanisms of governance in order to better understand the problems facing these countries and generate policy implications that compensate for the weaknesses of capital markets.corporate governance; corporate law; economic transition; economic development

Reconstructing and reforming Ukraine

Helping Ukraine to reconstruct and reform its economy is arguably the most important project for Europe this century. It will require extraordinary collaboration from within and outside of the country. We establish a set of principles that should guide these efforts, based on international and Ukraine’s own experience. This experience also suggests key building blocks of a reform and reconstruction architecture that can help ensure that these principles are successfully applied. We assess the current institutional arrangements in this light and suggest adjustments that will increase the likelihood of success. The core of the argument is that the unfathomable choices involved in reconstruction and reform, including the use of donor resources, must be made by the Ukrainian people and its elected representatives, and the outcome must be owned by them

An Incomplete Contracts Approach to Corporate Bankruptcy

This paper integrates the problem of designing corporate bankruptcy rules into a theory of optimal debt structure. We show that, in an incomplete contract framework with imperfect renegotiation, having multiple creditors increases a firm's debt capacity while increasing its incentives to default strategically. The optimal debt contract gives creditors claims that are jointly inconsistent in case of default. Bankruptcy rules, therefore, are a necessary part of the overall financing contract, to make claims consisitent and to prevent a value reducing run for the assets of the firm. Furthermore, a too unequal allocation of security rights is not optimal, and creditors are not treated asymmetrically in default under the optimal contract.bankruptcy; debt structure; contracts

Club-in-the-Club: Reform under Unanimity

In many organizations, decisions are taken by unanimity giving each member veto power. We analyze a model of an organization in which members with heterogenous productivity privately contribute to a common good. Under unanimity, the least efficient member imposes her preferred effort choice on the entire organization. In the presence of externalities and an incomplete charter, the threat of forming an "inner organization" can undermine the veto power of the less efficient members and coerce them to exert more effort. We also identify the conditions under which the threat of forming an inner organization is executed. Finally, we show that majority rules effectively prevent the emergence of inner organizations.organizations; club good; voting rules; EU integration

Short-Term versus Long-Term Interests: Capital Structure with Multiple Investors

We study the problem of financial contracting and renegotiation between a firm and outside investors when the firm cannot commit to future payouts, but assets can be contracted upon. We show that a capital structure with multiple investors specializing in short-term and long-term claims is superior to a structure with only one type of claim, because this hardens the incentives for the entrepreneur to renegotiate the contract ex post. Depending on the parameters, the optimal capital structure also differentiates between state-independent and state-dependent longterm claims, which can be interpreted as long-term debt and equit

European industrial policy — tapping the full growth potential of the EU

Europe, like many of the world's advanced economies, is facing a fundamental growth challenge. Growth has slowed in the wake of the global financial crisis, as investment has decreased and the legacy of non-performing loans and uncertainty about the institutional arrangements established in response to the crisis are likely to be with us for years. However, the evidence suggests that this slowdown started before the crisis, as improvements in productivity did not come at the same pace as in the past

A new policy paradigm from the LSE Maryam Forum: 1. reforming the way we deal with global emergencies

Existing systems for dealing with global emergencies have struggled to rise to the challenge of the pandemic. Erik Berglof, Adnan Khan, Hassan Gali (LSE) and the LSE Maryam Forum’s global emergencies working group sets out what needs to change. Over the past year, it has become clear quite how badly the systems for dealing with global ... Continue

Club-in-the-club: reform under unanimity

In many organizations, decisions are taken by unanimity giving each member veto power. We analyze a model of an organization in which members with heterogenous productivity privately contribute to a common good. Under unanimity, the least efficient member imposes her preferred effort choice on the entire organization. The threat of forming an “inner organization” can undermine the veto power of the less efficient members and coerce them to exert more effort. We also identify the conditions under which the threat of forming an inner organization is executed. Finally, we show that majority rules effectively prevent the emergence of inner organizations

European Transition at Twenty

This study gauges the status of transition in the formerly centrally planned economies of Eastern Europe and Central Asia, using a broad approach that compares countries with respect to their business environment, competition, and managerial practices; and assesses transition progress at the level of 13 economic sectors. The largest transition gaps remain in Central Asia and some Eastern European and Western Balkans countries. However, significant reform needs also remain in some Central European and Baltic countries, particularly in energy efficiency, transport, and in the financial sector where regulatory regimes require strengthening and local capital markets need to be developed.transition, economic reform, managerial practices, competition, business environment