Liam Wren-Lewis

Anti-Corruption Policy in Theories of Sector Regulation

Corruption in regulated industries has been a problem “forever”, or at least for as long as regulation has existed. Most regulated industries involve large costly investments and long maintenance and operational contracts two obvious sources of financial rents. Many also deal with politically sensitive sectors in which price control or creative tariff structures are easy to implement and employment opportunities abound obviously strong sources of political rent. Together, these are probably the core sources of corruption in these industries.

Accounting for Changes in Income Inequality: Decomposition Analyses for the UK, 1978–2008

We analyse income inequality in the UK from 1978 to 2009 in order to understand why income inequality rose very rapidly from 1978 to 1991 but then remained broadly unchanged. We find that inequality in earnings among employees has risen fairly steadily since 1978, but other factors that caused income inequality to rise before 1991 have since gone into reverse. Inequality in investment and pension income has fallen since 1991, as has inequality between those with and without employment. Furthermore, certain household types – notably the elderly and those with young children – which had relatively low incomes in the period to 1991 have seen their incomes converge with others.

Why Did Britain's Households Get Richer? Decomposing UK Household Income Growth between 1968 and 2008-09

 Average real UK household income has almost doubled over the past forty years. With four decades of micro-data on household incomes, and relatively simple decomposition methods, we document the contribution to this growth in the mean net household income of working-age households from different income sources, and break down further changes in employment income by household member and into separate participation, hours and hourly wage effects. We also perform such analyses for the mean income of the richest working-age households, and among a group defined by having a low household income but a strong connection to the labour market.

Learning from Lemons: The Role of Government in Index Insurance for Individuals

This paper considers the potential role of government in aiding the scale-up of high quality index insurance products in developing countries. In particular, we analyse optimal public policy in light of the fact that index insurance policies are typically credence goods - that is, the basis risk of a given policy cannot be distinguished by consumers before purchase and only to a limited extent after purchase. We discuss two potential market failures that stem from this property that governments may seek to correct: low takeup and low investment in reducing basis risk. In each case, we consider the costs and benefits of various alternative government policies. We show that policies aimed to improve take-up may improve or worsen incentives for investment, and that the precise nature of these effects will depend on the government’s ability to commit, the marginal cost of funds, and their potential to identify the inputs necessary for constructing a high quality index.

Supranational Infrastructure Regulation: Institutional Opportunities and Challenges

As regions around the world are considering increased integration of key energy, transport or other infrastructure networks, issues build in the design of the supranational national regulation needed in that context are increasingly well recognized. Solutions are however slow to emerge. This paper reviews the challenges and discusses the directions suggested by theory to address these challenges. It highlight the potentially counterproductive effects of common standard policy recommendations discussed at the political level. The paper also identifies key research areas as the review of match between theory and evidence suggest that we still have to address significant gaps in our collective understanding of the impediments to desirable integration efforts.

The Private Sector and Poverty Reduction

Many commentators claim a key role for the private sector in reducing poverty. This can be achieved through direct benefits, such as the adoption of ethical business practices and the provision of employment, goods, and services to the poor; and through indirect positive impacts on macro-economic policy and business development. This paper argues that the likelihood of business impacts being pro-poor depends also on wider policy and structural conditions. These include the importance of poor people in a company’s business model, and the length of local investment and commitment that this demands. Case studies of three companies demonstrate the importance of legislation and civil society as catalysts for pro-poor change in business. Leadership from within the company and a strong business case are also essential. However, multiple entrenched problems with modern capitalist systems work against positive change within international business. Overcoming or mitigating these will be necessary if the pro-poor potential of he private sector is to be realised.

Grabbing Land in Malawi

The distribution of land in Malawi is highly unequal and frequently inefficient. Large areas of land are underutilized in a context where many Malawian farmers would be able to put such land to productive use. In this context, the Malawian government has been slow and ineffective invundertaking land reforms, despite large demand for change both from investors and the local population. This chapter explores the role that grabbing of land in Malawi plays in contributing to this situation. We focus on various forms of malpractice, corruption or opportunistic behaviours associated with land transfers. We begin by briefly setting out the history and context of land in Malawi, and then discuss various types of land grabbing that occur currently. We highlight the problems that this form of corruption leads to, before moving to consider policy suggestions for both the government and donors. Finally, we conclude by attempting to draw out any lessons that this example may teach us about corruption more generally.

Solving commitment problems in disaster risk finance

Those at risk from natural disasters are typically under-protected, possibly because they expect benefactors such as governments and donors to come to their aid. Yet when relief comes, it is often insufficient, delayed or misallocated. Benefactors may wish to commit to provide an efficient amount of fast well-targeted relief, and leave the rest up to recipients, but such commitments are difficult. This article analyses how transferring risk to third-parties such as private insurers may help resolve these commitment problems. Using a simple model of disaster risk finance is used to identify three distinct commitment problems and then show how various properties of risk transfer schemes can help to resolve these problems. The paper illustrates how these commitment problems play out using examples from around the world, and demonstrates where risk transfer schemes seem to have helped in practice. Overall, the findings show that the benefits of such schemes depend on the relative severity of the different commitment problems.

Designing Contracts for the Global Fund: Lessons from the Theory of Incentives

This paper uses contract theory to suggest simple contract designs that could be used by the Global Fund. Using a basic model of procurement, we lay out five alternative options and consider when each is likely to be most appropriate. The rest of the paper then discusses how one can build a realworld contract from these theoretical foundations, and how these contracts should be adapted to different contexts when the basic assumptions do not hold. Finally, we provide a synthesis of these various results with the aim of guiding policy makers as to when and how ‘results-based’ incentive contracts can be used in practice.

More than Just Friends? School Peers and Adult Interracial Relationships

This paper investigates whether interracial contact in childhood impacts adult romantic relationships. We exploit quasi-random variation in the share of black students across cohorts within US schools. We find that more black peers of the same gender lead whites to have more relationships with blacks as adults. While we do not find impacts on labor market outcomes, there are significant effects on reported racial attitudes. Furthermore, an increase in meeting opportunities is unlikely to explain the increased interracial relationships, since the effect is persistent across time, space and social networks. Overall, interracial contact during childhood has important long-term behavioral consequences.