Publications by Type: Miscellaneous

With the demise of the Soviet Union, the newly emerging countries of the Transcaucasus and Caspian regions were the objects of growing interest from the major Western powers and the international business community, neither of which had had access to the region since the early nineteenth century. The world?s greatest power, the United States, has never had a presence in this region, but it is now rapidly emerging as a major player in what is becoming a new classical balance of power game.

This paper focuses on two issue–areas that are characterized by relatively high levels of conflict between economic and social pressures, tourism and foreign direct investment (FDI). Tourism has been little studied by political scientists, but as an international economic activity it has tremendous importance for many states, and is often highly politicized. There is also a substantial secondary literature on tourism, mostly written by sociologists, and abundant (if at times unreliable) data. It thus is a good issue to study in this context, asking about the level at which tourism policy is made, and why. FDI has been taken more seriously by political scientists, although there has been surprisingly little written on this topic in the last decade or two. The literature on FDI from the 1970s leaves little doubt that economic and social pressures are often conflictual. We have also seen numerous attempts to shift the level of governance for FDI, and dramatic policy shifts. FDI therefore also promises to provide insights into how governments resolve tension between social and economic pressures for particular patterns of governance.

I address the issue principal–agent relationships in the IMF from the perspective of attempting to understand the IMF as an international institution. However, this issue is also vital in current policy debates about reform of the IMF. Participants in these debates seem torn between calling the IMF a "runaway agency" and a "U.S. pawn" (Sanger 1998). The Economist reports that "the institution is widely viewed as the handmaiden of America?s Treasury Department" (Economist, 29 July 2000, 66). The report of the U.S. IFI Advisory Commission argues that if "the G–7 finance ministers can agree on a policy that they wish to pursue, for whatever reason, they can use the IMF as the instrument of that policy." Jeffrey Sachs, one of the members of that commission and a supporter of its conclusions, argues that the IMF is the instrument of a few rich governments (Financial Times, 25 September 2000). But in his statements as part of the IFI Advisory Commission, Sachs repeatedly raised questions about the public scrutiny and democratic accountability of the Fund, implying that the Fund bureaucracy acts without adequate political oversight. Clearly, both viewpoints cannot be correct – the Fund cannot simultaneously be an out–of–control bureaucracy and slave to its political masters. Only careful consideration of actual principal–agent relationships will bring clarity to this debate.

Once a dream, soon a reality? Euro–defense has been a myth or a daydream – especially for the French – since the inception of a unified Europe. Again, it has become highly topical, since St Malo, Cologne and even more since Helsinki? Might it, in the end, shadow the paramount issue of NATO enlargement? This topic has had different titles over the past few years. Should we still speak of ESDI (European Security and Defense Identity)? This was the somewhat "psychological" term forged to express the European yearning for a visibility of their own inside the Alliance, but this introverted phase of awakening is now passé. The European goals have been set in broad strokes, the design has been written in ink into formal documents, the institutions and means of the new policy are being built up. Therefore, my choice of the alphabet–soup name for the topic is ESDP (European Security and Defense Policy). Let it be known, however, that the issue is no other than the future of European defense in both the European Union and the transatlantic contexts.

La primera revolución de la diplomacia fue la de su nacimiento como institución. En realidad, el arte u oficio de las relaciones internacionales existe desde que se produjeron los primeros contactos entre pueblos diferentes, durante la más remota Antigüedad. Se sabe que, ya en el siglo XIV a.C., había algún tipo de relación formal entre egipcios y habitantes de la Mesopotamia. Pero fue el contacto estrecho entre las ciudades–estado de la Grecia clásica lo que dio origen a la diplomacia institucionalizada. Heraldos y un cierto código de conducta le otorgaron carta de naturaleza. Las relaciones diplomáticas de esta primera época tenían carácter puntual. A partir de entonces, paulatinamente, el poder político se fue centralizando y la comunicación entre las distintas entidades que lo albergaban se fue intensificando.

American foreign policy toward the Democratic People?s Republic of Korea (DPRK or North Korea) faces the problem of how to engage peacefully with a country that wants economic "tribute" but prefers self–protective isolation to the ideological risks of wider involvement in the world community. While the DPRK has accepted U.N. World Food Program (WFP) famine aid and has agreed to the construction of the two nuclear power plants, it rejects reliance on foreign trade and investment as too intrusive. In the 1994 Agreed Framework with the U.S., the DPRK traded its graphite nuclear plant for construction of the two light water reactor (LWR) power plants in a remote and thinly populated coastal area. (The graphite nuclear plant as a by–product converts uranium into weapons grade plutonium, while the LWR nuclear plants convert uranium into a less–fissile form of plutonium.)

Tunnelling is defined as the transfer of assets and profits out of firms for the benefit of their controlling shareholders. We describe the various forms that tunnelling can take, and examine under what circumstances it is legal. We discuss two important legal principles — the duty of care and the duty of loyalty — which courts use to analyze cases involving tunnelling. Several important legal cases from France, Belgium, and Italy illustrate how and why the law accommodates tunnelling in civil law countries, and why certain kinds of tunnelling are less likely to pass legal scrutiny in common law countries.

In this paper, we investigate a neglected aspect of financial systems of many countries around the world: government ownership of banks. We assemble data which establish four findings. First, government ownership of banks is large and pervasive around the world. Second, such ownership is greater in countries with low levels of per capita income, backward financial systems, interventionist and inefficient governments, and poor protection of property rights. Third, higher government ownership of banks in 1970 is associated with slower subsequent financial development. Finally, higher government ownership of banks in 1970 is associated with lower subsequent growth of per capita income, and in particular with lower growth of productivity rather than slower factor accumulation. This evidence is inconsistent with the optimistic "development" theories of government ownership of banks common in the 1960s, but supports the more recent "political" theories of the effects of government ownership of firms.

Este documento se aboca a las necesidades de apoyo que tiene el Presidente de la República en tanto legislador, un aspecto de sus funciones determinado por las relaciones que tiene con el Congreso, y lo que implica en cuanto a la organización de su oficina.

This paper compares retrospective and prospective analyses of the effect of flip charts on test scores in rural Kenyan schools. Retrospective estimates that focus on subjects for which flip charts are used suggest that flip charts raise test scores by up to 20 percent of a standard deviation. Controlling for other educational inputs does not reduce this estimate. In contrast, prospective estimators based on a study of 178 schools, half of which were randomly selected to receive charts, provide no evidence that flip charts increase test scores. One interpretation is that the retrospective results were subject to omitted variable bias despite the inclusion of control variables. If the direction of omitted variable bias were similar in other retrospective analyses of educational inputs in developing countries, the effects of inputs may be even more modest than retrospective studies suggest. Bias appears to be reduced by a differences–in–differences estimator that examines the impact of flip charts on the relative performance of students in flip chart and other subjects across schools with and without flip charts, but it is not clear that this approach is applicable more generally.

Today, the United States government spurs research mainly through direct funding and the granting of patents. Both methods are vitally important, but each causes serious problems–and each has proved inadequate in spurring the research needed to develop effective vaccines against HIV, tuberculosis and malaria.

This paper examines the effect of reduced transaction costs in the international trading of assets on the ability of governments to issue debt. We examine a model in which governments care about the welfare of their citizens, and thus are more inclined to default if a large proportion of their debt is held by foreigners. Reductions in transaction costs make it easier for domestic citizens to share risk by selling debt to foreigners. This may increase tendencies for governments to default, and thus raise their cost of credit and reduce welfare. We find that even in the absence of transaction costs, home bias in placement of government debt may persist, because in the presence of default risk the return on government debt is correlated with the tax burden required to pay the debt. Asset inequality may reduce this home bias, and by increasing foreign ownership, increase incentives for default. Finally, if foreign creditors are less risk averse than domestic creditors, there may be one equilibrium in which domestic creditors hold the asset and default risk is low, and another in which foreign creditors hold the asset and default risk is high.

Developing countries with highly unequal income distributions, such as Brazil or South Africa, face an uphill battle in reducing inequality. Educated workers in these countries have a much lower birthrate than uneducated workers. Assuming children of educated workers are more likely to become educated, this tends to increase the proportion of unskilled workers, reducing their wages, and thus their opportunity cost of having children, creating a vicious cycle. A model incorporating this effect generates multiple steady–state levels of inequality, suggesting that in some circumstances, temporarily increasing access to educational opportunities could permanently reduce inequality. Empirical evidence suggests that the fertility differential between the educated and uneducated is greater in less equal countries, consistent with the model.

In response to the widespread consensus on the importance of social capital, and to concerns about the scarcity of institutions giving voice to disadvantaged groups, some donors have begun programs designed to strengthen indigenous community organizations. We use a prospective, randomized evaluation to examine a development program explicitly targeted at building social capital among rural women's groups in western Kenya. The program increased turnover among group members. It increased entry into group membership and leadership by younger, more educated women, by women employed in the formal sector, and by men. The analysis suggests that providing development assistance to indigenous community organizations of the disadvantaged may change the very characteristics of these organizations that made them attractive to outside funders.

Discussion of tax credits as a means of encouraging research into otherwise unprofitable vaccines for AIDS, tuberculosis, and malaria.

For a general program to combat communicable diseases of the poor to stimulate research, it must include an explicit commitment to help finance the purchase of new vaccines if and when they are developed. Without an explicit commitment along the lines proposed by Wolfensohn, it is unlikely that the large scale investments needed to develop vaccines will be undertaken.

Malaria, tuberculosis, and the strains of HIV common in Africa kill approximately 5 million people each year. Yet research on vaccines for these diseases remains minimal—largely because potential vaccine developers fear that they would not be able to sell enough vaccine at a sufficient price to recoup their research expenditures. Enhancing markets for new vaccines could create incentives for vaccine research and increase accessibility of any vaccines developed. For example, the World Bank has proposed establishing a fund to help developing countries finance purchases of specified vaccines if they are invented. The U.S. administration’s budget proposal includes a tax credit for new vaccines that would match each dollar of vaccine sales with a dollar of tax credits. This paper examines the rationale for such proposals. Private firms currently conduct little research on vaccines against malaria, tuberculosis, and the strains of HIV common in Africa. This is not only because these diseases primarily affect poor countries, but also because vaccines are subject to severe market failures. Once vaccine developers have invested in developing vaccines, government are tempted to use their powers as regulators, major purchasers, and arbiters of intellectual property rights to force prices to levels that do not cover research costs. Research on vaccines is an international public good, and none of the many small countries that would benefit from a malaria, tuberculosis, or HIV vaccine has an incentive to encourage research by unilaterally offering to pay higher prices. In fact, most vaccines sold in developing countries are priced at pennies per dose, a tiny fraction of their social value. More expensive, on–patent vaccines are typically not purchased by the poorest countries. Hence, private developers lack incentives to pursue socially valuable research opportunities. Large public purchases could potentially enlarge the market for vaccines, benefiting both vaccine producers and the public at large.

Several programs have been proposed to improve incentives for research on vaccines for malaria, tuberculosis, and HIV, and to help increase accessibility of vaccines once they are developed. The U.S. administration's budget proposes a tax credit that would match each dollar of vaccine sales with a dollar of tax credit. The World Bank has proposed a $1 billion fund to provide concessional loans to countries to purchase vaccines if and when they are developed. European political leaders have spoken favorably about the concept of a vaccine purchase fund. This paper explores the design of such programs, focusing on commitments to purchase new vaccines.

For vaccine purchase commitments to spur research, potential vaccine developers must believe that the sponsor will not renege on the commitment once vaccines have been developed and research costs sunk. Courts have ruled that similar commitments are legally binding contracts. Given appropriate legal language, the key determinant of credibility will therefore be eligibility and pricing rules, rather than whether funds are physically set aside in separate accounts. The credibility of purchase commitments can be enhanced by specifying rules governing eligibility and pricing of vaccines in advance and insulating those interpreting these rules from political pressure through long terms. Requiring candidate vaccines to meet basic technical requirements, normally including approval by some regulatory agency, such as the U.S. FDA, would help ensure that funds were spent only on effective vaccines. Requiring developing to contribute co–payments would help ensure that they felt that the vaccines were useful given the conditions in their countries. The U.S. Orphan Drug Act's success in stimulating research and development is widely attributed to a provision awarding market exclusivity to the developer of the first drug for a condition unless subsequent drugs are clinically superior. Purchases under a vaccine purchase program could be governed by a similar market exclusivity provision.

A purchase commitment program could start by offering a fairly modest price. If this proved inadequate to spur sufficient research, the promised price could be increased. This procedure mimics auctions, which are often efficient procurement methods when costs are unknown. As long as prices do not rise at a rate substantially greater than the interest rate, vaccine developers would not have incentives to withhold vaccines from the market.

The World Bank has termed health interventions costing less than $100 per year of life saved as highly cost effective for poor countries. If donors pledge approximately $250 million per year for each vaccine for ten years, vaccine purchases would cost approximately $10 per year of life saved. It is unlikely that vaccines for all three diseases would be developed simultaneously, but if donors wanted to limit their exposure, they could cap their total promised vaccine spending under the program, for example at $520 million annually. No funds would be spent or pledges called unless a vaccine were developed.

What is the economic significance of "grey market" payments to physicians in Hungary? Let us look at the question first from the angle of theconsumer of medical provisions, the "buyer" in this unusual market transaction.

The Vaccines for the New Millennium Act (HR 3812; SR 2132) includes both enhanced R&D tax credits and a tax credit for sales of vaccines to non–profits and international organizations. The combination is likely to be effective. The enhanced R & D tax credit will provide an immediate benefit for firms doing research in the area. The tax credits for sales will provide incentives for firms to follow through by designing appropriate vaccines for the regions where the diseases are most deadly and will help increase accessability of any vaccines developed. There are several reasons why tax credits for sales of vaccines are an essential element of any package to promote vaccine R&D.