The author considers the benefit to agricultural producers of commodity price insurance that provides in every year-but in advance of the resolution of production and price uncertainty--a minimum price for a fixed or variable portion of production. Under the assumption that producers do not change their long term production and income diversification pattern, the author suggests a theoretical framework that leads to explicit formulas of the benefit in providing this type of insurance. He shows that this benefit depends not only on the actuarially fair insurance premium, but also on household-specific factors that depend on the attitudes to risk, the consumption smoothing parameters, and the household-specific exposures to income risks. The author applies the theoretical framework for Ghana, using the Ghana Living Standards Survey data to specify various classes of cocoa-producing households and monthly price data for both domestic and international prices, to formulate appropriate models for ascertaining price risks faced by producers. The author gives empirical estimates of the actuarially fair premium, and shows that they are smaller than market-based put option prices from organized exchanges. The overall benefit in providing minimum price insurance to households, however, turns out to be substantially higher than the actuarially fair premiums and the market-based put option prices. This is due to both the magnitude of the uncertainties facing the households, as well as their risk and consumption smoothing behavior.

Sarris considers the benefit to agricultural producers of commodity price insurance that provides in every year - but in advance of the resolution of production and price uncertainty - a minimum price for a fixed or variable portion of production. Under the assumption that producers do not change their long term production and income diversification pattern, the author suggests a theoretical framework that leads to explicit formulas of the benefit in providing this type of insurance. He shows that this benefit depends not only on the actuarially fair insurance premium, but also on household-specific factors that depend on the attitudes to risk, the consumption smoothing parameters, and the household-specific exposures to income risks. The author applies the theoretical framework for Ghana, using the Ghana Living Standards Survey data to specify various classes of cocoa-producing households and monthly price data for both domestic and international prices, to formulate appropriate models for ascertaining price risks faced by producers. The author gives empirical estimates of the actuarially fair premium, and shows that they are smaller than market-based put option prices from organized exchanges. The overall benefit in providing minimum price insurance to households, however, turns out to be substantially higher than the actuarially fair premiums and the market-based put option prices. This is due to both the magnitude of the uncertainties facing the households, as well as their risk and consumption smoothing behavior.This paper - a product of Rural Development, Development Research Group - is part of a larger effort in the group to analyze mechanisms for risk mitigation in agriculture.

Countries emerging from civil war attract both aid and policy advice. This paper provides the first systematic empirical analysis of aid and policy reform in the post-conflict growth process. It is based on a comprehensive data set of large civil wars and covers 27 countries that were in their first decade of post-conflict economic recovery during the 1990s. The authors first investigate whether the absorptive capacity for aid is systematically different in post-conflict countries. They find that during the first three post-conflict years, absorptive capacity is no greater than normal, but that in the rest of the first decade it is approximately double its normal level. So ideally, aid should phase in during the decade. Historically, aid has not, on average, been higher in post-conflict societies, and it has tended to taper out over the course of the decade. The authors then investigate whether the contribution of policy to growth is systematically different in post-conflict countries, and in particular, whether particular components of policy are differentially important. For this they use the World Bank policy rating database. The authors find that growth is more sensitive to policy in post-conflict societies. Comparing the efficacy of different policies, they find that social policies are differentially important relative to macroeconomic policies. However, historically, this does not appear to have been how policy reform has been prioritized in post-conflict societies.

Abstract: A decade long experience shows that monitoring the performance of public and private monopolies in South America is proving to be the hard part of the reform process. The operators who control most of the information needed for regulatory purposes have little interest in volunteering their dissemination unless they have an incentive to do so. Estache, Rossi, and Ruzzier argue that, in spite of, and maybe because of, a much weaker information base and governance structure, South America's electricity sector could pursue an approach that relies on performance rankings based on comparative efficiency measures. The authors show that with the rather modest data currently available publicly, such an approach could yield useful results. They provide estimates of efficiency levels in South America's main distribution companies between 1994 and 2000. Moreover, the authors show how relatively simple tests can be used by regulators to check the robustness of their results and strengthen their position at regulatory hearings. This paper"a joint product of the Governance, Regulation, and Finance Division, World Bank Institute, and the Finance, Private Sector, and Infrastructure Unit, Latin America and the Caribbean Region"is part of a larger effort in the institute to increase understanding of infrastructure regulation.

Countries that have experienced banking crises have adopted one of two distinct approaches toward the resolution of nonperforming assets--a centralized or a decentralized solution. A centralized approach entails setting up a government agency--an asset management company--with the full responsibility for acquiring, restructuring, and selling of the assets. A decentralized approach relies on banks and other creditors to manage and resolve nonperforming assets. Dado and Klingebiel study banking crises where governments adopted a decentralized, creditor-led workout strategy following systemic crises. They use a case study approach and analyze seven banking crises in which governments mainly relied on banks to resolve nonperforming assets. The study suggests that out of the seven cases, only Chile, Norway, and Poland successfully restructured their corporate sectors with companies attaining viable financial structures. The analysis underscores that as in the case of a centralized strategy the prerequisites for a successful decentralized restructuring strategy are manifold. The successful countries significantly improved the banking system's capital position, enabling banks to write down loan losses; banks as well as corporations had adequate incentives to engage in corporate restructuring; and ownership links between banks and corporations were limited or severed during crises. This paper--a product of the Financial Sector Operations and Policy Department--is part of a larger effort in the department to examine the resolution of financial crises.

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De la Torre, Levy Yeyati, and Schmukler present a framework to analyze financial globalization. They argue that financial globalization needs to take into account the relation between money (particularly in its role as store of value), asset and factor price flexibility, and contractual and regulatory institutions. Countries that have the "blessed trinity" (international currency, flexible exchange rate regime, and sound contractual and regulatory environment) can integrate successfully into the world financial markets. But developing countries normally display the "unblessed trinity" (weak currency, fear of floating, and weak institutional framework). The authors define and discuss two alternative avenues (a "dollar trinity" and a "peso trinity") for developing countries to safely embrace international financial integration while the blessed trinity remains beyond reach. This paper--a product of the Office of the Chief Economist, Latin America and the Caribbean Region, and the Investment Climate Team, Development Research Group--is part of a larger effort in the Bank to assess the implications of financial globalization for emerging economies.