The Complier Pays Principle: The Limits of Fiscal Approaches Toward Sustainable Forest Management

This paper examines the role and impact of taxation on sustainable forest management. It is shown that fiscal instruments neither reinforce nor substitute for traditional regulatory approaches and can actually undermine sustainability. The paper uses the reasoning at the root of the Faustmann solution to draw conclusions on the incentives for sustainable tropical forest exploitation. It proposes a bond mechanism as an alternative market-based instrument to encourage sustainable forest logging while reducing monitoring costs. Copyright 2001, International Monetary Fund

Power indices and the measurement of control in corporate structures

This paper proposes a brief review of the use of power indices in the corporate governance literature. Without losing sight of the field of application, it places the emphasis on the game-theoretic aspects of this research and on the issues that arise in this framework

Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships

There is a strong economic rationale for close cooperation between the public and private sectors. This has resulted in a significant increase in the demand for the provision of public services through instruments combining public and private money such as public-private partnerships (PPPs or P3s). We describe these arrangements and explore how they can be analyzed using standard tools in economics (incentives and principal-agent theory). We discuss the implications of our approach in terms of identifying risks that are often overlooked before turining to the optimal risk-sharing between the public and private partners, in particular with respect to information asymmetries in risk perceptions. This allows us to propose a typology of the risks associated with PPPs, where both internal risks (the risks associated with the contract) and external risks (those associated with the project) are considered.infrastructure financing, public-private partnerships, principal-agent framework, risk classification, transportation infrastructure, value for money

Regulating sovereign wealth funds operating overseas through an external fund manager

This article looks at the relationship between SWFs and their recipient countries, with a focus on the impact it may have depending on the nature of the objectives pursued by the SWF from the perspective of a principal-agent framework. In particular, when the SWF has multiple objectives, there is a risk that signals are misinterpreted and lead to misguided reactions by authorities in the recipient country. Thus, hard to interpret signals do not provide a sufficient case for imposing constraints on the SWF. However, we will show that requiring the SWF to invest through intermediary asset managers may foster cooperation, especially when the objectives of the SWF and of the authorities are closely aligned. SWFs may also alleviate the concerns in recipient countries by acting as an investor (and accepting the funds) of other SWF and non-SWF investors.

A Principal-Agent Theory Approach to Public Expenditure Management Systems in Developing Countries

A well-functioning public expenditure management (PEM) system is considered a critical pillar of government efficiency, on par with a low-distortion tax system and efficient tax administration. The paper discusses PEM systems in developing countries using an analytical framework based on principal-agent theory. This simple model can be applied to various PEM systems, and allows for comparisons between institutional settings. To illustrate this, we analyze the benefits derived from the use by the Ministry of Finance (MoF) of two control instruments; ex post audits and ex ante controls, and assess their value in terms of their ability to deter cheating. We derive a set of possible “control regimes” which can be used by the MoF. Although we illustrate the use of the model using developing countries, it is also relevant to developed economies.Peer reviewe

Green Energy Depends on Critical Minerals. Who Controls the Supply Chains?

In light of the transition away from fossil fuel–based energy, this paper highlights the importance of understanding who controls vital parts of the global supply chains of critical minerals and rare earth elements (REEs). Analysis of direct ownership does not reveal the real sources of control over the decisions of the company. To identify those sources, we use an index that measures the degree to which important shareholders can affect voting decisions. This analysis is not straightforward, because companies along the supply chain are not necessarily incorporated in the countries in which mining and production activities take place, and shareholders can exert influence through multiple layers of subsidiaries. Our analysis reveals that China’s control over the global value chains involving critical minerals and REEs extends beyond what is commonly assumed. It also sheds light on environmental, social, and governance issues in the countries in which mining and/or production take place. The paper advocates increasing transparency regarding the sources of control to better assess and manage economic and geopolitical risks; enhancing recycling, to reduce dependency on foreign supply; avoiding protectionist and trade-reducing reactions; and encouraging research and development in order to speed up the adoption of technologies of substitution

Regulating sovereign wealth funds operating overseas through an external fund manager

This article looks at the relationship between SWFs and their recipient countries, with a focus on the impact it may have depending on the nature of the objectives pursued by the SWF from the perspective of a principal-agent framework. In particular, when the SWF has multiple objectives, there is a risk that signals are misinterpreted and lead to misguided reactions by authorities in the recipient country. Thus, hard to interpret signals do not provide a sufficient case for imposing constraints on the SWF. However, we will show that requiring the SWF to invest through intermediary asset managers may foster cooperation, especially when the objectives of the SWF and of the authorities are closely aligned. SWFs may also alleviate the concerns in recipient countries by acting as an investor (and accepting the funds) of other SWF and non-SWF investors

Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the authors and are published to elicit comments and to further debate.There is a strong economic rationale for close cooperation between the public and private sectors. This has resulted in a significant increase in the demand for the provision of public services through instruments combining public and private money such as public-private partnerships (PPPs or P3s). We describe these arrangements and explore how they can be analyzed using standard tools in economics (incentives and principal-agent theory). We discuss the implications of our approach in terms of identifying risks that are often overlooked before turining to the optimal risk-sharing between the public and private partners, in particular with respect to information asymmetries in risk perceptions. This allows us to propose a typology of the risks associated with PPPs, where both internal risks (the risks associated with the contract) and external risks (those associated with the project) are considered

The Optimal Product-Mix for a Monopolist in the Presence of Congestion Effect: A Model and Some Results

The paper develops a model of product differentiation in which the quality of a product may be negatively affected by the number of consumers buying it, as it is the case for any good affected by congestion. It is shown that for any positive degree of heterogeneity among the consumers, a monopolist will always find it more profitable to differentiate, i.e., to sell more than one quality of the product at different prices