This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

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Over the last thirty years, a new paradigm in banking theory has overturned economists' traditional vision of the banking sector. The asymmetric information model, extremely powerful in many areas of economic theory, has proven useful in banking theory both for explaining the role of banks in the economy and for pointing out structural weaknesses in the banking sector that may justify government intervention. In the past, banking courses in most doctoral programs in economics, business, or finance focused either on management or monetary issues and their macroeconomic consequences; a microeconomic theory of banking did not exist because the Arrow-Debreu general equilibrium model of complete contingent markets (the standard reference at the time) was unable to explain the role of banks in the economy. This text provides students with a guide to the microeconomic theory of banking that has emerged since then, examining the main issues and offering the necessary tools for understanding how they have been modeled. This second edition covers the recent dramatic developments in academic research on the microeconomics of banking, with a focus on four important topics: the theory of two-sided markets and its implications for the payment card industry; "non-price competition" and its effect on the competition-stability tradeoff and the entry of new banks; the transmission of monetary policy and the effect on the functioning of the credit market of capital requirements for banks; and the theoretical foundations of banking regulation, which have been clarified, although recent developments in risk modeling have not yet led to a significant parallel development of economic modeling. Praise for the first edition:"The book is a major contribution to the literature on the theory of bankingand intermediation. It brings together and synthesizes a broad range ofmaterial in an accessible way. I recommend it to all serious scholars andstudents of the subject. The authors are to be congratulated on a superbachievement." -- Franklin Allen, Nippon Life Professor of Finance and Economics, WhartonSchool, University of Pennsylvania "This book provides the first comprehensive treatment of the microeconomicsof banking. It gives an impressive synthesis of an enormous body ofresearch developed over the last twenty years. It is clearly written and apleasure to read. What I found particularly useful is the great effort thatXavier Freixas and Jean-Charles Rochet have taken to systematicallyintegrate the theory of financial intermediation into classicalmicroeconomics and finance theory. This book is likely to become essentialreading for all graduate students in economics, business, and finance." -- Patrick Bolton, Barbara and David Zalaznick Professor of Business, Columbia University Graduate School of Business "The authors have provided an extremely thorough and up-to-date survey ofmicroeconomic theories of financial intermediation. This work manages to beboth rigorous and pleasant to read. Such a book was long overdue and shouldbe required reading for anybody interested in the economics of banking andfinance." -- Mathias Dewatripont, Professor of Economics, ECARES, Universit

Microeconomics of banking

This paper estimates the impact of participation, by gender, in the Grameen Bank and two other group-based micro credit programs in Bangladesh on labor supply, schooling, household expenditure, and assets. The empirical method uses a quasi-experimental survey design to correct for the bias from unobserved individual and village-level heterogeneity. We find that program credit has a larger effect on the behavior of poor households in Bangladesh when women are the program participants. For example, annual household consumption expenditure increases 18 taka for every 100 additional taka borrowed by women from these credit programs, compared with 11 taka for men.

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The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?

How to explain the surprising finding that more education did not lead to faster economic growth? Cross-national data on economic growth rates show that increases in educational capital resulting from improvements in the educational attainment of the labor force have had no positive impact on the growth rate of output per worker. In fact, contends Pritchett, the estimated impact of growth of human capital on conventional nonregression growth accounting measures of total factor productivity is large, strongly significant, and negative. Needless to say, this at least appears to contradict the current conventional wisdom in development circles about education's importance for growth. After establishing that this negative result about the education-growth linkage is robust, credible, and consistent with previous literature, Pritchett explores three possible explanations that reconcile the abundant evidence about wage gains from schooling for individuals with the lack of schooling impact on aggregate growth: - That schooling creates no human capital. Schooling may not actually raise cognitive skills or productivity but schooling may nevertheless raise the private wage because to employers it signals a positive characteristic like ambition or innate ability. - That the marginal returns to education are falling rapidly where demand for educated labor is stagnant. Expanding the supply of educated labor where there is stagnant demand for it causes the rate of return to education to fall rapidly, particularly where the sluggish demand is due to limited adoption of innovations. - That the institutional environments in many countries have been sufficiently perverse that the human capital accumulated has been applied to activities that served to reduce economic growth. In other words, possibly education does raise productivity, and there is demand for this more productive educated labor, but demand for educated labor comes from individually remunerative but socially wasteful or counterproductive activities - a bloated bureaucracy, for example, or overmanned state enterprises in countries where the government is the employer of last resort - so that while individuals' wages go up with education, output stagnates, or even falls. This paper - a product of the Poverty and Human Resources Division, Policy Research Department - is part of a larger effort in the department to investigate the determinants of economic growth.

Where Has All the Education Gone

Debt with Potential Repudiation: Theoretical and Empirical Analysis

This paper attempts to survey, and to put into perspective, recent lterature that has analyzed the nature of credit relations between developed and developing countries.This analysis has made use of recent advances in the economics of information and strategic interaction. Traditional concepts of solvency and liquidity are of little help in understanding problems of soverign debt. Creditors do not have the means to seize the assets of a borrower in default. Hence the borrower who is expected eventually to repay his debts should be able to borrow to meet any current debt-service obligations. A problem that is essential to a theory of international lending is that of enforcement. The difficulty is one of ensuring that the two sides of a loan contract adhere to it, in particular that the borrower repays the lender and the lenders can commit themselves to penalize the borrower if he does not.

The Pure Theory of Country Risk

https://www.nber.org/system/files/working_papers/w1894/w1894.pdf

The pure theory of country risk

If infectious people can infect other people, who in turn can infect others, and so on - the pure infection externality - government subsidies to affect private behavior should equally favor preventive and curative activities, if people recover to become susceptible again. Otherwise, other subsidy and tax strategies may make more sense. Despite interesting work on infectious diseases by such economists as Peter Francis, Michael Kremer, and Tomas Philipson, the literature does not set out the general structure of externalities involved in the prevention and cure of such diseases. Gersovitz and Hammer identify two kinds of externality. First, infectious people can infect other people, who in turn can infect others, and so on, in what the authors call the pure infection externality. In controlling their own infection, people do not take into account the social consequence of their infection. Second, in the pure prevention externality, one individual's preventive actions (such as killing mosquitoes) may directly affect the probability of others becoming infected, whether or not the preventive action succeeds for the individual undertaking it. Gersovitz and Hammer provide a general framework for discussing these externalities and the role of government interventions to offset them. They move the discussion away from its focus on HIV (a fatal infection for which there are few interventions) and on vaccinations (which involve plausibly discrete decisions) to more general ideas of prevention and cure applicable to many diseases for which interventions exhibit a continuum of intensities subject to diminishing marginal returns. Infections and actions to prevent or cure them entail costs. Individuals balance those parts of different costs that they can actually control. In balancing costs to society, government policy should take individual behavior into account. Doing so requires a strategy combining preventive and curative interventions to offset both the pure infection externality and the pure infection externality. The relative importance of the strategy's components depends on: The biology of the disease - including whether an infection is transmitted from person to person or by vectors. The possible outcomes of infection: Death, recovery with susceptibility, or recovery with immunity. The relative costs of the interventions. Whether interventions are targeted at the population as a whole, the uninfected, the infected, or contacts between the uninfected and the infected. The behavior of individuals that leads to the two types of externalities. This paper - a product of Public Service Delivery, Development Research Group - is part of a larger effort in the group to examine the public economics of health.

The Economical Control of Infectious Diseases

The structure of representative agents and decentralisation of the social planner's problem provide a framework for the economics of infection and associated externalities. Optimal implementation of prevention and therapy depends on: (1) biology including whether infection is person to person or by vectors; (2) whether the infected progress to recovery and susceptibility, immunity, or death; (3) costs of interventions; (4) whether interventions target everyone, the uninfected, the infected, or contacts between the two; (5) individual behaviour leading to two types of externalities. By way of example, if people recover to be susceptible, government subsidies should equally favour prevention and therapy. The economic approach to infectious diseases is in its infancy, somewhat oddly because many economists have long had the intuition that epidemics and infectious diseases are quintessential manifestations of the principle of an externality, itself a central concept in economics (Gersovitz and Hammer, forthcoming a). Furthermore, epidemiology provides ready-made dynamic models of disease transmission and economics provides methods of valuing the costs and benefits of health interventions and methods of dynamic optimisation to guide policy. Policy toward infections is of great importance. Yet only recently have economists begun to look at these questions in a formal way. This paper has two main goals. The overarching goal is to dissect two important externalities involving infectious diseases when there are the options of both prevention and therapy, so that the relative phasing of these two types of interventions is important. To achieve this goal, we need to state the social planner's or first-best problem and to compare it to a representative agent's problem. To avoid compounding the identification of any externalities with problems of myopia, imperfect ability to insure health outcomes, or a disregard for the welfare of future generations, we make assumptions about the behaviour of the representative agent such that these problems do not arise, allowing us to focus exclusively on the externalities that we identify. These assumptions may not always be adequate approximations and a relaxation of these assumptions would lead to further considerations in the design of interventions but we do not deal with these issues in this paper. The economic literature on infectious diseases has taken as its starting point some special although important concerns. This starting point has influenced modelling strategies in ways that we believe obscures the general structure of private choice and consequent externalities in the process of disease transmission.

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Mark Gersovitz

Papers

Debt with Potential Repudiation: Theoretical and Empirical Analysis

The Pure Theory of Country Risk

The pure theory of country risk

The Economical Control of Infectious Diseases

The Economical Control of Infectious Diseases