Showing papers in "World Bank Research Observer in 1995"

The dangers of decentralization

Abstract: The author highlights some of the dangers of decentralizations. The benefits of decentralization in allocative efficiency are not as obvious as suggested by the standard theory of fiscal federalism. The assumptions of this theory are fragile. These doubtful benefits might carry a cost in production efficiency, but more empirical research is needed on this point. What is not doubtful is that decentralization runs counter to redistribution and stabilization. Decentralization makes redistributive policies, whether interpersonal or interjurisdictional, more difficult, if not impossible. Decentralization also makes macroeconomic stabilization programs more difficult to implement because subnational government fiscal policies can run counter to national policies. Serious drawbacks or potential drawbacks should be considered in designing any decentralization program. The arguments that the author develops make it easier to understand some of the real choices. These choices are not so much whether to decentralize in general but rather what functions to decentralize - in which sectors, and in which regions. Guidelines can be provided on this. Often, the problem is not so much whether a certain service should be provided by a central, regional, or local government, since the service often has to be provided with the intervention of all three levels of government. The real challenge is how to organize the joint production of the service. Decentralization refers simultaneously to a state and to a process. The virtues and dangers of decentralization are often discussed simultaneously for both concepts. This is a dangerous confusion because decentralization is path-dependent. What is desirable in a given country at a certain point in time depends on the present state of decentralization and the speed at which it has been reached. Much more work, particularly empirical work, is needed -- in review of decentralization (or centralization) experiences in general, as well as those encouraged or supported by the World Bank.

Interpreting recent research on schooling in developing countries

Abstract: Policymakers in developing countries have long been troubled by the undesirable, but apparently unavoidable, choice between providing broad access to education and developing high-quality schools. Recent evidence, however, suggests that this is a bad way to think about human capital development. Grader repetition and high dropout rates lead to a significant waste of resources in many school systems. Students in quality schools, however, respond in ways that reduce such inefficiencies, perhaps even sufficiently to recoup immediately investments in quality. Promoting high-quality schools, however, is more difficult than many have thought, in part because research demonstrates that the traditional approach to providing quality-simply providing more inputs-is frequently ineffective. Existing inefficiencies are likely to be alleviated only by the introduction of substantially stronger performance incentives in schools and by more extensive experimentation and evaluation of educational programs and school organizations. Incentives, decentralized decision making, and evaluation are alien terms to education, in both industrial and developing countries, but they hold the key to improvement that has eluded policymakers pursuing traditional practices.

Unitary versus collective models of the household : time to shift the burden of proof?

Abstract: Most development objectives focus on the well-being of individuals. Policies are targeted to increase the percentage of individuals who avoid poverty, who can read, who are free from hunger and illness, or who can find gainful employment. Individual welfare, however, is based in large part on a complex set of interactions among family members. Until recently most policy analyses implicitly viewed the household as having only one set of preferences. This assumption has been a powerful tool for understanding household behavior, such as the distribution of tasks and goods. But a growing body of evidence suggests that this view is an expedience that comes at considerable, and possibly avoidable, cost. The article argues that more effective policy instruments will emerge from analyzing the processes by which households balance the diverse interests of their members.

Research on schooling: what we know and what we don't a comment on hanushek

Abstract: In his stimulating article, Eric Hanushek argues that school quality bears little relationship to expenditure on school inputs; that achieving quality should be given greater priority relative to quantity; and that schools should be given greater incentives to improve quality. In this comment, the report argue that the limited available evidence suggests that expenditure affects school quality and that author can be fairly confident that supplying particular inputs, such as radio education and textbooks, will improve school quality. This paper also argue that author have insufficient evidence to conclude that quality should be a higher priority than ensuring that schools are available for more children. Finally, this paper adds some cautionary notes to Hanushek's call for increased emphasis on incentives for schools and teachers.

Parallel exchange rates in developing countries

Abstract: Dual exchange rates and black markets for foreign exchange are common in developing countries, and a body of evidence is beginning to emerge on the effects that such parallel foreign exchange systems have on macroeconomic performance. This article presents a simple typology of parallel systems, discusses their emergence, and looks at why countries prefer these arrangements to the main alternatives. The article examines the ability of parallel markets to insulate international reserves and domestic prices from shocks to the balance of payments. Drawing on the findings from eight detailed case studies, the authors discuss the determination of the parallel premium in the short and long terms, the relationship between the premium and illegal transactions, and the fiscal effects of parallel rates. They compare the experiences of countries that have attempted to unify their foreign exchange markets and discuss the implications for policy alternatives.

The economics of municipal solid waste

Abstract: This article examines the generation and management of municipal solid waste through the lens of economics. The authors estimate that the global burden of municipal solid waste amounted to 1.3 billion metric tons in 1990, or two-thirds of a kilogram of waste per person per day. Industrial countries account for a disproportionately high share of the world's waste relative to their share of world population, while developing countries account for a disproportionately high share of the world's waste relative to their share of world income. Analyses across countries and over time reveal that the generation of municipal solid waste is positively related to variations in per capita income and that the generation of municipal solid waste per capita does not vary with population size among countries with comparable per capita income. Community intervention may be needed to promote the social good, with evidence accumulating in support of arrangements involving the participation of private firms. The authors' calculations also suggest that improvements made now in the handling of hazardous waste will be far less expensive in discounted terms than undoing in the future the damage being caused by current practices. Addressing these issues from a rational societal perspective will become increasingly urgent in the future, especially in the developing countries, where the authors project that municipal solid waste will increase at an annual rate of 2.7 percent through the year 2010.

The costs and benefits of agroforestry to farmers

Abstract: Deforestation, growing scarcity of tree products, and environmental degradation have created serious problems for rural land use in many developing countries. Agroforestry, a system in which/ woody perennials are grown on the same land as agricultural crops or livestock, has been increasingly enlisted in the campaign to meet these threats to the rural economy. Case studies of twenty-one agroforestry projects in six Central American and two Caribbean countries formed the empirical basis for the study described in this article. A focal point of analysis was the profitability of agroforestry for farmers as a crucial incentive to adoption. The findings indicate that many agroforestry practices are profitable under a broad range of conditions and are therefore likely to be widely applicable. Successful projects have worked with local communities, responding to local needs and preferences and offering farmers a broad basket of species and systenms from which to choose. Demonstration plots and the use of paratechnicians have been low-cost and effective means of technology transfer, and applied research has been imiportant in identifying techniques and practices suited to the region. Other findings have identified government regulation of tree harvesting and insecurity of tenure-though not lack of title in itself-as disincentives to adoption. D eforestation in Central America and the Caribbean has meant increasing scarcity of trees, a principal source of fuel and construction materials in rural areas, and contributes to environmental degradation of fragile agricultural lands. In the eight countries where the empirical part of our work was done, the forest cover declined between 10 and 24 percent during the 1980s (table 1). In the two countries with the highest population density (El Salvador and Haiti), only 6.2 and 1.3 percent of forest cover remained by 1990.

Financing infrastructure in developing countries: lessons from the railway age

Abstract: In recent years suggestions for reforming the provision and financing of infrastructure services in developing countries have focused on private participation. This alternative to public financing is seen as a way both to minimize the inefficiencies of public administration and to avoid the need for external borrowing. If fact, for much of the nineteenth century, infrastructure projects were privately financed and built. This approach, however, did not obviate the need for government intervention and foreign capital. Because of the difficulties of assessing projects, investors were reluctant to commit their funds, and governments turned to subsidies and loan guarantees to encourage investment. Often, however, government intervention only replaced one set of problems with another. Investors with government-guaranteed loans had no incentive to monitor the firm's performance - a limitation that led to the diversion of funds and frustrated the public interest. This article draws out the implications of this experience for policymakers in developing countries today.

Comment on 'the dangers of decentralization' by Prud'homme

Abstract: As an advocate of decentralization, I find it difficult to respond to Remy Prud'homme's arguments against decentralization. It is undoubtedly true that decentralization, done badly, can cause problems. But the article is not devoted primarily to demonstrating that proposition; for the most part it argues that decentralization, per se, is wrongheaded. Prud'homme (p. 201) sets up a straw man that he calls the 'pure decentralization of fiscal federalism.' He then argues that relying on this theory will lead to a variety of problems, including a tolerance of interjurisdictional disparities, an inability to conduct macroeconomic stabilization policy, and a loss of productive efficiency in the public sector. In a section entitled 'beyond the centralization-decentralization dichotomy,' he presents his antidote to this approach. The study of such grants has not been confined to academic research. Although the use of grants is relatively limited in the United States, that is not the case in other federations.

Incentives and the resolution of bank distress

Abstract: Unlike prudential regulations that are put in place prospectively to develop banks, procedures for dealing with banks in distress are generally determined on an ad hoc basis. Often the lack of clarity in the policy framework creates incentive for bank managers, shareholders, depositors, and regulators that undercut prompt resolution of financial distress. The result is often inaction, the accumulation of bad debt, and ultimately the assumption of losses by the state. This article argues that government intervention to relieve financial distress should be institutionalized on a set of regulations that forces the authorities to comply with reporting and decisionmaking processes. Only in this way can inherent disincentives for dealing with distress be curtailed.

The economics of natural resource extraction : a primer for development economists

Abstract: As developing countries become major consumers of the global supply of commercial energy, it is essential to understand the determinants of future energy prices. At the same time, many developing countries are relying on exports of their own natural resources - tropical hardwoods, oil, tin, gold, and other minerals - to generate badly needed foreign exchange. Government policies influence how much of a resource is extracted today and how much is saved for the future. Flawed policies needlessly waste precious national wealth.

The costs and benefits of agro-forestry to farmers

Abstract: Deforestation, growing scarcity of tree products, and environmental degradation has created serious problems for rural land use in many developing countries. Agroforestry, a system in which/ woody perennials are grown on the same land as agricultural crops or livestock, has been increasingly enlisted in the campaign to meet these threats to the rural economy. The findings indicate that many agroforestry practices are profitable under a broad range of conditions and are therefore likely to be widely applicable. Successful projects have worked with local communities, responding to local needs and preferences and offering farmers abroad basket of species and systems from which to choose. Demonstration plots and the use of paratechnicians have been low-cost and effective means of technology transfer, and applied research has been important in identifying techniques and practices suited to the region. Other findings have identified government regulation of tree harvesting and insecurity of tenure-though not lack of title in itself-as disincentives to adoption.