Institutions and economics

[field_auth], 16 August 2016

The nature of US military interventions has become relevant in the face of new growing threats, particularly from so-called Islamic State. While top-down strategies that rely on overwhelming firepower are sometimes favoured by politicians, longer-term strategies use a bottom-up approach, gaining citizens’ support through civic engagement. This column introduces evidence from US actions during the Vietnam War to show that bottom-up approaches are more successful in countering insurgencies than violent, top-down interventions.

[field_auth], 13 August 2016

The recession has left a legacy of non-performing loans on Italian banks’ balance sheets.  Policymakers in Italy understand well the importance of correcting their banks’ problems to foster a healthy economic recovery.  This column argues that reforming the judicial and extra judicial processes for recovering collateral offers the potential of improving banks’ balance sheets and enhancing financial stability, not only by increasing loan collections directly, but also by improving borrowers’ incentive to service their existing debt.

[field_auth], 07 August 2016

Open competition is regarded as a crucial ‘preventative tool’ that limits government discretion and abuse of power when awarding procurement contracts. However, various studies have identified numerous drawbacks to using open auctions when contracting is imperfect. This column discusses the effects of increased buyer discretion on public procurement in Italy. Increased discretion raises the number of repeated wins by contractors, suggesting long-term relationships between buyers and sellers. Furthermore, productive buyer-seller relationships appear to outnumber corrupt ones.

[field_auth], 17 June 2016

The two main elements of bank industry oversight are regulation and supervision. This column provides a framework for thinking about supervision in relation to regulation. Using US data on supervisory hours spent, it finds evidence of economies of scale for bank size. Additionally, less risky banks receive substantially lower amounts of supervisory hours. The findings highlight that supervisors face resource constraints and trade-offs.

[field_auth], 31 May 2016

Public development banks play a significant role in the allocation of credit to businesses that may be unable to attain credit under normal circumstances, despite generating positive externalities. But there is concern that lending by these institutions may end up being allocated inefficiently. This column considers the costly screening that banks must do to allocate funds. It finds that the inefficient allocation of credit may arise when banks are unable to fully internalise the benefits of possible projects. Direct lending and the implementation of subsidies for intermediated lending are two possible ways to counter expensive screening.

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