The Contribution of Douglass North to New Institutional Economics

Douglass North, along with Ronald Coase and Oliver Williamson, transformed the early intuitions of new institutional economics into powerful conceptual and analytical tools that spawned a robust base of empirical research. NIE arose in response to questions not well explained by standard neoclassical models, such as make or buy and why rich or poor? Today NIE is a success story by many measures: four Nobel laureates in under 20 years, increasing penetration of mainstream journals, and significant impact on major policy debates from anti-trust law to development aid. This paper provides a succinct overview of North's evolving ideas about institutions and explains how North's work shaped the emerging field of new institutional economics and had a potent impact on economics and the social sciences more broadly. North provides a powerful example of how persistent and well placed confidence and hard work can productively transform the status quo. North's influence continues strong and his enthusiasm for exploring new frontiers and cooperating across artificial academic boundaries has never waned.New Institutional Economics, institutions, transaction costs, development and growth

Information, incentives, and commitment : an empirical analysis of contracts between government and state enterprises

The authors analyze experience with written performance contracts between developing country governments and the managers of their state-owned enterprises. Such contracts have been a vogue since the mid-1980s, and substantial resources have been sunk into their design and enforcement, yet the few assessments to date show mixed results. Using a simple agency model, they identify how problems of weak incentives sthemming from information asymmetry, lack of government commitment, and lack of managerial commitment can lead to shirking. They apply the model to a sample of 12 contracts with monopoly enterprises in six developing countries (Ghana, India, the Republic of Korea, Mexico, the Philippines, and Senegal). All suffer from serious contracting problems. They find no pattern of improved performance that can be attributed to the contracts. Only three of the 12 case-study companies showed a turnaround in total factor productivity after contracts were introduced, six continued past trends, and three performed substantially worse under contracts than they had before. Labor productivity improved at a faster pace in four cases, and deteriorated in none, but the improvement predated the contract. Performance contracting assumes that government's objectives can be maximized, and performance improved, by setting targets that take into account the constraints placed on managers. For this to occur, the principals must be willing to explicitly state their objectives, assign to them priorities and weights, translate them into performance improvement targets, provide incentives to meet those targets (or monitor the agents without incurring significant costs), and credibly signal their commitment to the contract. These conditions failed to materialize. Why would governments adopt contracts to which they were notcommitted or that were politically unrealistic? Sometimes because it enabled themto get foreign assistance. How explain the managers'lack of commitment? Not surprisingly, managers with information advantages and bargaining power, and with no strong incentives or commitment from the government, used their advantages to manipulate the targets so as to ensure that their performance would be judged satisfactory. The authors outline the conditions under which performance contracts might succeed in improving performance.Environmental Economics&Policies,Labor Policies,Health Economics&Finance,International Terrorism&Counterterrorism,Banks&Banking Reform,Knowledge Economy,Health Economics&Finance,Environmental Economics&Policies,National Governance,Education for the Knowledge Economy

Telecommunication reform in Ghana

In 1996 Ghana privatized its incumbent telecommunications firm by selling 30 percent of Ghana Telecom to Telekom Malaysia, licensing a second network operator, and allowing multiple mobile firms to enter the market. The reforms yielded mixed results. Landline telephone penetration increased dramatically while the number of mobile subscribers surpassed even this higher level of fixed line subscribers. On the other hand, the network did not reach the levels the government hoped, the second network operator never really got off the ground, and the regulator remained weak and relatively ineffective. The sustainability of competition is unclear. The government ended Telekom Malaysia's management of Ghana Telecom and has invited Norway's Telenor as a strategic partner. What this means in practice remains unclear, and the process for selecting Telenor lacked any transparency. Meanwhile, some of the mobile firms are in precarious financial positions. Competition is still relatively strong, but its sustainability will depend on the government's future commitment to ensuring it.Economic Theory&Research,Public Sector Economics&Finance,Rural Communications,ICT Policy and Strategies,Environmental Economics&Policies

The Buenos Aires water concession

The signing of a concession contract for the Buenos Aires water and sanitation system in December 1992, attracted worldwide attention, and caused considerable controversy in Argentina. It was one of the world's largest concessions, but the case was also interesting for other reasons. The concession was implemented rapidly, in contrast with slow implementation of privatization in Santiago, for example. And reform generated major improvements in the sector, including wider coverage, better service, more efficient company operations, and reduced waste. Moreover, the winning bid brought an immediate 26.9 percent reduction in water system tariffs. Consumers benefited from the system's expansion and from the immediate drop in real prices, which was only partly reversed by subsequent changes in tariffs, and access charges. And these improvements would probably not have occurred under public administration of the system. Still, the authors show information asymmetries, perverse incentives, and weak regulatory institutions could threaten the concession's sustainability. Opportunities for the company to act opportunistically - and the regulator, arbitrarily - exist, because of politicized regulation, a poor information base, serious flaws in the concession contract, a lumpy and ad hoc tariff system, and a general lack of transparency in the regulatory process. Because of these circumstances, public confidence in the process has eroded. The Buenos Aires concession shows how important transparent, rule-based decision-making is to maintain public trust in regulated infrastructure.Health Economics&Finance,Environmental Economics&Policies,Water Conservation,Water and Industry,Decentralization,Town Water Supply and Sanitation,Environmental Economics&Policies,Water and Industry,Water Supply and Sanitation Governance and Institutions,Water Conservation

Evaluating the performance of public enterprises in Pakistan

This report assesses the performance evaluation system being used for industrial public enterprises in Pakistan. The assessment aims to assist the Pakistani government in strengthening the system as needed, and to inform interested officials in other countries of the costs and benefits of the system and how it might be adapted for their use. Chapter 2 provides a brief history and description of the system. Chapter 3 examines the impact of the system on the performance of the public enterprises, while chapter 4 examines the system's impact on government policy. Some suggestions for strengthening the system are made in chapter 5. The potential for applying the system to other countries is examined in chapter 6. Finally, chapter 7 contains a statistical appendix.Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Health Monitoring&Evaluation,Information Technology

Improving public enterprise performance : lessons from South Korea

In 1983 Korea dramatically changed the way it managed the largest and most important group of its public enterprises, or GIEs. The reforms increased enterprise autonomy, changed managerial selection procedures, and began systematically to evaluate performance and provide incentives on the basis of the evaluation. This paper assesses the results of these reforms and suggests ways the Korean performance evaluation system might be adapted to cicumstances in other countries. A central feature of the Korean reforms is the performance evaluation system, which sets clear targets for management and provides bonuses on the basis of outcomes. The system has four essential prerequisites for success : 1) parallel reforms to increase managerial autonomy and skills, 2) reliable and timely information, 3) adequate skills to supervise and evaluate, and 4) political will. This paper suggests ways to build up and compensate for the first three requirement; there is no substitute for the fourth.Banks&Banking Reform,Economic Theory&Research,Environmental Economics&Policies,Small Scale Enterprise,Private Participation in Infrastructure

The construction and evaluation of a word pronunciation test for grades four, five, and six

Thesis (Ed.M.)--Boston Universit

The Contribution of Douglass North to New Institutional Economics

International audienceDouglass North, along with Ronald Coase, Elinor Ostrom, and Oliver Williamson, transformed the early intuitions of new institutional economics into powerful conceptual and analytical tools that spawned a robust base of empirical research. NIE arose in response to questions not well explained by standard neoclassical models, such as make or buy? Or, why rich or poor? Today NIE is a success story by many measures: four Nobel laureates in under 20 years, increasing penetration of mainstream journals, and significant impact on major policy debates from anti-trust law to development aid. This paper provides a succinct overview of North’s evolving ideas about institutions and explains how North’s work shaped the emerging field of new institutional economics and had a potent impact on economics and the social sciences more broadly. North provides a powerful example of how persistent and well placed confidence and hard work can productively transform the status quo. North’s influence continues strong and his enthusiasm for exploring new frontiers and cooperating across artificial academic boundaries has never waned

Reforming the urban water system in Santiago, Chile

In the late 1980s, Chile planned to privatize Santiago's sanitary works enterprise (EMOS) but instead reformed it under public ownership. It did so through a regulatory framework that mimicked the design of a concession with a private utility, setting tariffs that ensured at least a seven percent return on assets, creating a neutral regulator independent of ministry intervention, and giving EMOS the right to appeal the regulator's tariff decisions. This reform of Santiago's water system is often cited as a case of successful reform under public management. Comparing a comprehensive measure of welfare with a counterfactual example, the authors show surprisingly large gains from Santiago's reform, given the relatively good initial conditions. (The gains accrued largely to government and employees, but consumers benefited from improved service and coverage). Why did reform in Santiago improve water system performance, when similar reform attempts under public management in other countries failed? 1) Chile has a long tradition of private water rights, shaped by early recognition that water is a scarce and tradable private good. 2) The reformed regulatory framework was designed to attract private investors to the water system and to motivate them to operate efficiently and expand the system. 3) Chile's unique electoral institutions sustained this framework under state operation after democracy was restored. 4) Chile's strong bureaucratic norms and institutions (permitting little corruption), combined with Santiago's relatively low-cost water system, permitted prices that effectively increased quasi-rents for investing in the system while minimizing the risk of inefficiency or monopoly rents. The authors also address the question of why EMOS was reformed but not privatized, and what the costs of not privatizing were. The system was privatized in 1999, but the changes from privatization are likely to be less significant than those introduced in 1989-90.Decentralization,Water Conservation,Environmental Economics&Policies,Water and Industry,Water Supply and Systems,Water Supply and Sanitation Governance and Institutions,Water and Industry,Water Conservation,Environmental Economics&Policies,Town Water Supply and Sanitation