In October 1989 the BCEAO, which is the central bank for the West African Economic and Monetary U... more In October 1989 the BCEAO, which is the central bank for the West African Economic and Monetary Union, announced its intention to shift towards using indirect instruments of monetary policy, based on modifications of the central bank discount rate as the primary policy tool. There has been some question whether the BCEAO has actually begun to actively use its discount rate as a monetary policy tool, (see IMF 2001 on this point). This paper asks to what extent the BCEAO modifies its discount rate in response to changing domestic economic conditions, or, alternatively, whether movements in the BCEAO discount rate are driven above all by changes in foreign interest rates. We focus in particular on the period after
The Geneva Papers on Risk and Insurance - Issues and Practice
Selling insurance gives insurers an incentive to manage insured risks. The “insurance-as-governan... more Selling insurance gives insurers an incentive to manage insured risks. The “insurance-as-governance” literature demonstrates that insurers often make insurance conditional on ex ante risk reduction or mitigation. But insurance governs in support of enterprise, not security for its own sake. Tight underwriting inhibits enterprise—not only for insured businesses but also for the business of insurance. This paper highlights ex post loss reduction as a form of insurance-based governance. Drawing on interviews with industry insiders, we explore how insurers addressed the evolving problems of moral hazard, uncertainty and correlated losses since the 1990s. We find that cyber insurance developed sophisticated remedies to contain liabilities and quickly restore affected IT systems, but largely left security decisions to the insured. This facilitated enterprise in the short run but undermined security in the longer term: funding and expediting ransom payments encourages further attacks. As b...
Peace Economics, Peace Science and Public Policy, 2016
The award committee has chosen Paul Collier as the winner of the 2016 Lewis Fry Richardson Award ... more The award committee has chosen Paul Collier as the winner of the 2016 Lewis Fry Richardson Award in particular in recognition of his contributions to the study of civil war. His famous paper on “Greed and grievance in civil war” – published with Anke Hoeffler in 2004, but circulating in draft form since the late 1990s – has been cited over 1000 times in the Web of Science as of mid-July 2016, and has over 5000 citations in Google Scholar. The jury also highlighted the key role of Collier’s work reviving academic research on civil war in the late 1990s, the broader impact of the World Bank group led by Collier in spurring advances in the field as well as stimulating important data collection efforts, as well as his central role in popularizing insights of academic research to a broader audience.
This paper examines whether the BCEAO has made use of the various policy instruments at its dispo... more This paper examines whether the BCEAO has made use of the various policy instruments at its disposal for steering credit in the individual CFA zone member countries to complement interest rate policy at the zone level. We estimate whether private sector credit has responded systematically to different monetary policy variables using iterated 3-stage least squares regressions for Burkina Faso, Côte d'Ivoire, Mali, Senegal and Togo. If we constrain the coefficient estimates there is some support for the hypothesis that the BCEAO has contracted private sector credit in response to a higher inflation differential with France. However, there seems to be no policy rule to restrict private sector credit in response to increasing government borrowing from the central bank or increased foreign borrowing. If the coefficient estimates are unconstrained, there does not appear to be any systematic policy to control credit expansion at the domestic level.
Over the last three decades, the art market has undergone a remarkable transformation. Before the... more Over the last three decades, the art market has undergone a remarkable transformation. Before the 1990s, artworks were sold with hardly any concern about whether they had been stolen or looted, whereas now any reputable gallery or auction house checks the “provenance” of any substantial work before sale. This transformation reflects interlocking changes in law, norms, and institutions. New York’s and more broadly the United States’ assertion of jurisdiction and application of U.S. substantive law has destabilized title to stolen and looted goods worldwide because American statutes of limitations generally provide weaker protection for those who possess stolen or looted goods even in good faith. Application of American law has had a profound effect, especially for the high end of the market, because European or Asian investors who purchase art outside of the U.S. may eventually want to sell or display their works in the U.S. Defective title under American law thus affects prices worl...
Every hostage negotiation has the potential to end badly—yet almost all insured criminal kidnaps ... more Every hostage negotiation has the potential to end badly—yet almost all insured criminal kidnaps end with a safe hostage release. This chapter analyses under what circumstances abusing or killing hostages is a rational choice. It shows how private sector negotiators shape kidnappers’ pay-offs to encourage cooperative behaviour. When a kidnapping gang is reclassified as terrorist, the parameters of bargaining change substantially. Putting well-resourced but nervous and inexperienced civil servants in charge of negotiations results in the escalation of ransoms. Murder and torture for reputation drives up the prices for hostages from nations whose governments are willing to engage with terrorists. The UN ban on ransom payment therefore has unintended and counterproductive consequences.
Ransom discipline is paramount for kidnap insurance and provides wider social benefits. Outsize r... more Ransom discipline is paramount for kidnap insurance and provides wider social benefits. Outsize ransoms can trigger a vicious cycle of kidnappings, hostage abuse, and ransom inflation. Crisis responders have developed a robust bargaining protocol to stabilize ransoms and incentivize cooperative behaviour by kidnappers. Kidnappers only release hostages when they think they have extracted the maximum available ransom. This requires that hostage stakeholders send psychologically costly signals to convince kidnappers that their funds are exhausted. However, if hostage stakeholders believe that there is a trade-off between time and money in a hostage negotiation, the bargaining protocol creates the (false) impression of a principal–agent problem between professional negotiators and stakeholders. Managing the resulting suspicion and distrust is as important as shaping the negotiation with the kidnappers.
Protection theory predicts that if a society is capable of producing surpluses, people specialize... more Protection theory predicts that if a society is capable of producing surpluses, people specialize into production, trade, and protection. The protector facilitates production and trade by safeguarding people, enforcing property rights, and adjudicating disputes and is paid for providing these services. Protection can be provided by states, rebels, or mafias: tax and extortion are often closely related in practice. Why would protectors kidnap citizens in their own territory? This chapter shows that kidnapping is disequilibrium behaviour: abductions occur when citizens (or visitors) refuse to pay protection money, do not know who to pay, or how to pay their protector, and when protectors need more information to price their services. Most kidnaps occur in disputed territories, where there is a disequilibrium in the market for protection.
Somali piracy is often described as a form of organized crime, with pirates providing their own s... more Somali piracy is often described as a form of organized crime, with pirates providing their own security. Such an approach fails to distinguish between different actors within modern piracy and leads to policies focusing on deterring pirate recruits. Drawing on Protection Theory developed for the study of Mafias, a detailed analysis of Bloomberg maps of hijacked vessels' routes, field interviews and Somali press reports, we show that there is instead a clear distinction between protectors of piracy and pirates. Clan elders and their militias facilitate piracy, because they protect hijacked ships in their anchorages and have well-established channels for coordinating actions where business interests cut across clan lines. This explains the relative stability and order within the piracy business, such as the lack of re-hijacking. The paper concludes by arguing that the solution to piracy needs to focus on the enablers rather than the executors of the crime, and should be at the su...
How do you set a mutually agreeable price for a fully laden ship and crew held by pirates? This c... more How do you set a mutually agreeable price for a fully laden ship and crew held by pirates? This chapter analyses the transcript of a real pirate ransom negotiation in the light of the economic theories of price formation in anarchic bargaining developed in Chapter 6. Personalities assert themselves, tempers fray, and both negotiating parties split in the stress of the negotiation. Principals and agents are divided and regroup in new ways. The negotiation demonstrates both the wisdom of the Lloyd’s protocol and the difficulty of applying it in real life. Having witnessed this tense negotiation conducted in 2008/9, we understand why Somali pirate ransoms spiralled out of control.
Water charities and the UN development goals consider access to clean water and sanitation as tra... more Water charities and the UN development goals consider access to clean water and sanitation as transformative: improving personal dignity, quality of life and economic opportunities for individuals and the economic resilience of communities to climate stress. Can the provision of services also mitigate the conflict potential arising from climate change? If so, how broad must access be to become effective? We test how household access to improved water, sanitation, and electricity affects the probability of local conflict in nine drought-prone African countries. We use annual PRIO-GRID cells as the unit of analysis and model the probability of a grid-cell experiencing fatal armed conflict during local or proximate drought conditions. DHS data are used to calculate the percentage of households with access to specific services. We show that even relatively modest investments in reliable sanitation and water infrastructures enhance communities' ability to avoid getting drawn into violent conflict in response to rainfall shocks.
If citing, it is advised that you check and use the publisher's definitive version for pagination... more If citing, it is advised that you check and use the publisher's definitive version for pagination, volume/issue, and date of publication details. And where the final published version is provided on the Research Portal, if citing you are again advised to check the publisher's website for any subsequent corrections.
Peace Economics, Peace Science and Public Policy, 2015
If citing, it is advised that you check and use the publisher's definitive version for pagination... more If citing, it is advised that you check and use the publisher's definitive version for pagination, volume/issue, and date of publication details. And where the final published version is provided on the Research Portal, if citing you are again advised to check the publisher's website for any subsequent corrections.
necessarily reflect the view of Chatham House, its staff, associates or Council. Chatham House is... more necessarily reflect the view of Chatham House, its staff, associates or Council. Chatham House is independent and owes no allegiance to any government or to any political body. It does not take institutional positions on policy issues. This document is issued on the understanding that if any extract is used, the author(s)/ speaker(s) and Chatham House should be credited, preferably with the date of the publication or details of the event. Where this document refers to or reports statements made by speakers at an event every effort has been made to provide a fair representation of their views and opinions, but the ultimate responsibility for accuracy lies with this document’s author(s). The published text of speeches and presentations may differ from delivery. Africa Programme Paper: AFP PP 2012/01
What determines the direction of spread of currency crises? We examine data on waves of currency ... more What determines the direction of spread of currency crises? We examine data on waves of currency crises in 1992, 1994, 1997, and 1998 to evaluate several hypotheses on the determinants of contagion. We simultaneously consider trade competition, financial links, and institutional similarity to the “ground-zero” country as potential drivers of contagion. To overcome data limitations and account for model uncertainty, we utilize Bayesian methodologies hitherto unused in the empirical literature on contagion. In particular, we use the Bayesian averaging of binary models which allows us to take into account the uncertainty regarding the appropriate set of regressors. We find that institutional similarity to the ground-zero country plays an important role in determining the direction of contagion in all the emerging market currency crises in our dataset. We thus provide persuasive evidence in favour of the “wake up call” hypothesis for financial contagion. Trade and financial links may al...
Using a new monthly time-series data set, we explore the factors associated with variations in th... more Using a new monthly time-series data set, we explore the factors associated with variations in the number of civilians killed or wounded by participants in the civil war in Peru during the 1980s and 1990s. We find that an increase in the level of abuse by one side is strongly associated with subsequent increases in the level of abuse by the other. Certain types of foreign intervention have a large and statistically significant impact on the level of abuse; some types of intervention raise the level of violence, but others reduce it.
Kidnap insurance depends on orderly and stable markets for protection and hostages. The governanc... more Kidnap insurance depends on orderly and stable markets for protection and hostages. The governance system for these three interlinked markets is best described as polycentric—i.e. consisting of multiple decision-making centres. Agents employed by the insurers are motivated and disciplined through financial incentives and peer monitoring. However, the system also needs an effective and completely confidential enforcement mechanism that compels all insurers to comply with the market-stabilizing norms and protocols. This is achieved through club governance. Insurers must be members of the Lloyd’s club to access crucial market information to operate profitably: losing club membership is the ultimate sanction in this market. We thus observe a polycentric system governed by a members’ club. Cases settled by outsiders threaten the stability of the system.
We present a locational model of banking with two types of private banks, honest and opportunisti... more We present a locational model of banking with two types of private banks, honest and opportunistic, and a state bank that is assumed to be less efficient. Opportunistic banks choose whether to honor their contracts with depositors depending on the probability of contract enforcement. We derive three types of equilibria, which depend on institutional quality: a “low” equilibrium in which private banks choose not to enter the market, a “high” equilibrium in which depositors place all their savings with private banks and an “intermediate” equilibrium in which state banks and private banks co-exist. In the intermediate equilibrium, the share of state banks depends inversely on institutional quality and positively on the proportion of opportunistic banks. We also show that when enforcement of deposit contracts is subject to a resource constraint, multiple equilibria can exist, and that depositors’ perception of whether opportunistic behavior is present determines the type of equilibrium ...
In October 1989 the BCEAO, which is the central bank for the West African Economic and Monetary U... more In October 1989 the BCEAO, which is the central bank for the West African Economic and Monetary Union, announced its intention to shift towards using indirect instruments of monetary policy, based on modifications of the central bank discount rate as the primary policy tool. There has been some question whether the BCEAO has actually begun to actively use its discount rate as a monetary policy tool, (see IMF 2001 on this point). This paper asks to what extent the BCEAO modifies its discount rate in response to changing domestic economic conditions, or, alternatively, whether movements in the BCEAO discount rate are driven above all by changes in foreign interest rates. We focus in particular on the period after
The Geneva Papers on Risk and Insurance - Issues and Practice
Selling insurance gives insurers an incentive to manage insured risks. The “insurance-as-governan... more Selling insurance gives insurers an incentive to manage insured risks. The “insurance-as-governance” literature demonstrates that insurers often make insurance conditional on ex ante risk reduction or mitigation. But insurance governs in support of enterprise, not security for its own sake. Tight underwriting inhibits enterprise—not only for insured businesses but also for the business of insurance. This paper highlights ex post loss reduction as a form of insurance-based governance. Drawing on interviews with industry insiders, we explore how insurers addressed the evolving problems of moral hazard, uncertainty and correlated losses since the 1990s. We find that cyber insurance developed sophisticated remedies to contain liabilities and quickly restore affected IT systems, but largely left security decisions to the insured. This facilitated enterprise in the short run but undermined security in the longer term: funding and expediting ransom payments encourages further attacks. As b...
Peace Economics, Peace Science and Public Policy, 2016
The award committee has chosen Paul Collier as the winner of the 2016 Lewis Fry Richardson Award ... more The award committee has chosen Paul Collier as the winner of the 2016 Lewis Fry Richardson Award in particular in recognition of his contributions to the study of civil war. His famous paper on “Greed and grievance in civil war” – published with Anke Hoeffler in 2004, but circulating in draft form since the late 1990s – has been cited over 1000 times in the Web of Science as of mid-July 2016, and has over 5000 citations in Google Scholar. The jury also highlighted the key role of Collier’s work reviving academic research on civil war in the late 1990s, the broader impact of the World Bank group led by Collier in spurring advances in the field as well as stimulating important data collection efforts, as well as his central role in popularizing insights of academic research to a broader audience.
This paper examines whether the BCEAO has made use of the various policy instruments at its dispo... more This paper examines whether the BCEAO has made use of the various policy instruments at its disposal for steering credit in the individual CFA zone member countries to complement interest rate policy at the zone level. We estimate whether private sector credit has responded systematically to different monetary policy variables using iterated 3-stage least squares regressions for Burkina Faso, Côte d'Ivoire, Mali, Senegal and Togo. If we constrain the coefficient estimates there is some support for the hypothesis that the BCEAO has contracted private sector credit in response to a higher inflation differential with France. However, there seems to be no policy rule to restrict private sector credit in response to increasing government borrowing from the central bank or increased foreign borrowing. If the coefficient estimates are unconstrained, there does not appear to be any systematic policy to control credit expansion at the domestic level.
Over the last three decades, the art market has undergone a remarkable transformation. Before the... more Over the last three decades, the art market has undergone a remarkable transformation. Before the 1990s, artworks were sold with hardly any concern about whether they had been stolen or looted, whereas now any reputable gallery or auction house checks the “provenance” of any substantial work before sale. This transformation reflects interlocking changes in law, norms, and institutions. New York’s and more broadly the United States’ assertion of jurisdiction and application of U.S. substantive law has destabilized title to stolen and looted goods worldwide because American statutes of limitations generally provide weaker protection for those who possess stolen or looted goods even in good faith. Application of American law has had a profound effect, especially for the high end of the market, because European or Asian investors who purchase art outside of the U.S. may eventually want to sell or display their works in the U.S. Defective title under American law thus affects prices worl...
Every hostage negotiation has the potential to end badly—yet almost all insured criminal kidnaps ... more Every hostage negotiation has the potential to end badly—yet almost all insured criminal kidnaps end with a safe hostage release. This chapter analyses under what circumstances abusing or killing hostages is a rational choice. It shows how private sector negotiators shape kidnappers’ pay-offs to encourage cooperative behaviour. When a kidnapping gang is reclassified as terrorist, the parameters of bargaining change substantially. Putting well-resourced but nervous and inexperienced civil servants in charge of negotiations results in the escalation of ransoms. Murder and torture for reputation drives up the prices for hostages from nations whose governments are willing to engage with terrorists. The UN ban on ransom payment therefore has unintended and counterproductive consequences.
Ransom discipline is paramount for kidnap insurance and provides wider social benefits. Outsize r... more Ransom discipline is paramount for kidnap insurance and provides wider social benefits. Outsize ransoms can trigger a vicious cycle of kidnappings, hostage abuse, and ransom inflation. Crisis responders have developed a robust bargaining protocol to stabilize ransoms and incentivize cooperative behaviour by kidnappers. Kidnappers only release hostages when they think they have extracted the maximum available ransom. This requires that hostage stakeholders send psychologically costly signals to convince kidnappers that their funds are exhausted. However, if hostage stakeholders believe that there is a trade-off between time and money in a hostage negotiation, the bargaining protocol creates the (false) impression of a principal–agent problem between professional negotiators and stakeholders. Managing the resulting suspicion and distrust is as important as shaping the negotiation with the kidnappers.
Protection theory predicts that if a society is capable of producing surpluses, people specialize... more Protection theory predicts that if a society is capable of producing surpluses, people specialize into production, trade, and protection. The protector facilitates production and trade by safeguarding people, enforcing property rights, and adjudicating disputes and is paid for providing these services. Protection can be provided by states, rebels, or mafias: tax and extortion are often closely related in practice. Why would protectors kidnap citizens in their own territory? This chapter shows that kidnapping is disequilibrium behaviour: abductions occur when citizens (or visitors) refuse to pay protection money, do not know who to pay, or how to pay their protector, and when protectors need more information to price their services. Most kidnaps occur in disputed territories, where there is a disequilibrium in the market for protection.
Somali piracy is often described as a form of organized crime, with pirates providing their own s... more Somali piracy is often described as a form of organized crime, with pirates providing their own security. Such an approach fails to distinguish between different actors within modern piracy and leads to policies focusing on deterring pirate recruits. Drawing on Protection Theory developed for the study of Mafias, a detailed analysis of Bloomberg maps of hijacked vessels' routes, field interviews and Somali press reports, we show that there is instead a clear distinction between protectors of piracy and pirates. Clan elders and their militias facilitate piracy, because they protect hijacked ships in their anchorages and have well-established channels for coordinating actions where business interests cut across clan lines. This explains the relative stability and order within the piracy business, such as the lack of re-hijacking. The paper concludes by arguing that the solution to piracy needs to focus on the enablers rather than the executors of the crime, and should be at the su...
How do you set a mutually agreeable price for a fully laden ship and crew held by pirates? This c... more How do you set a mutually agreeable price for a fully laden ship and crew held by pirates? This chapter analyses the transcript of a real pirate ransom negotiation in the light of the economic theories of price formation in anarchic bargaining developed in Chapter 6. Personalities assert themselves, tempers fray, and both negotiating parties split in the stress of the negotiation. Principals and agents are divided and regroup in new ways. The negotiation demonstrates both the wisdom of the Lloyd’s protocol and the difficulty of applying it in real life. Having witnessed this tense negotiation conducted in 2008/9, we understand why Somali pirate ransoms spiralled out of control.
Water charities and the UN development goals consider access to clean water and sanitation as tra... more Water charities and the UN development goals consider access to clean water and sanitation as transformative: improving personal dignity, quality of life and economic opportunities for individuals and the economic resilience of communities to climate stress. Can the provision of services also mitigate the conflict potential arising from climate change? If so, how broad must access be to become effective? We test how household access to improved water, sanitation, and electricity affects the probability of local conflict in nine drought-prone African countries. We use annual PRIO-GRID cells as the unit of analysis and model the probability of a grid-cell experiencing fatal armed conflict during local or proximate drought conditions. DHS data are used to calculate the percentage of households with access to specific services. We show that even relatively modest investments in reliable sanitation and water infrastructures enhance communities' ability to avoid getting drawn into violent conflict in response to rainfall shocks.
If citing, it is advised that you check and use the publisher's definitive version for pagination... more If citing, it is advised that you check and use the publisher's definitive version for pagination, volume/issue, and date of publication details. And where the final published version is provided on the Research Portal, if citing you are again advised to check the publisher's website for any subsequent corrections.
Peace Economics, Peace Science and Public Policy, 2015
If citing, it is advised that you check and use the publisher's definitive version for pagination... more If citing, it is advised that you check and use the publisher's definitive version for pagination, volume/issue, and date of publication details. And where the final published version is provided on the Research Portal, if citing you are again advised to check the publisher's website for any subsequent corrections.
necessarily reflect the view of Chatham House, its staff, associates or Council. Chatham House is... more necessarily reflect the view of Chatham House, its staff, associates or Council. Chatham House is independent and owes no allegiance to any government or to any political body. It does not take institutional positions on policy issues. This document is issued on the understanding that if any extract is used, the author(s)/ speaker(s) and Chatham House should be credited, preferably with the date of the publication or details of the event. Where this document refers to or reports statements made by speakers at an event every effort has been made to provide a fair representation of their views and opinions, but the ultimate responsibility for accuracy lies with this document’s author(s). The published text of speeches and presentations may differ from delivery. Africa Programme Paper: AFP PP 2012/01
What determines the direction of spread of currency crises? We examine data on waves of currency ... more What determines the direction of spread of currency crises? We examine data on waves of currency crises in 1992, 1994, 1997, and 1998 to evaluate several hypotheses on the determinants of contagion. We simultaneously consider trade competition, financial links, and institutional similarity to the “ground-zero” country as potential drivers of contagion. To overcome data limitations and account for model uncertainty, we utilize Bayesian methodologies hitherto unused in the empirical literature on contagion. In particular, we use the Bayesian averaging of binary models which allows us to take into account the uncertainty regarding the appropriate set of regressors. We find that institutional similarity to the ground-zero country plays an important role in determining the direction of contagion in all the emerging market currency crises in our dataset. We thus provide persuasive evidence in favour of the “wake up call” hypothesis for financial contagion. Trade and financial links may al...
Using a new monthly time-series data set, we explore the factors associated with variations in th... more Using a new monthly time-series data set, we explore the factors associated with variations in the number of civilians killed or wounded by participants in the civil war in Peru during the 1980s and 1990s. We find that an increase in the level of abuse by one side is strongly associated with subsequent increases in the level of abuse by the other. Certain types of foreign intervention have a large and statistically significant impact on the level of abuse; some types of intervention raise the level of violence, but others reduce it.
Kidnap insurance depends on orderly and stable markets for protection and hostages. The governanc... more Kidnap insurance depends on orderly and stable markets for protection and hostages. The governance system for these three interlinked markets is best described as polycentric—i.e. consisting of multiple decision-making centres. Agents employed by the insurers are motivated and disciplined through financial incentives and peer monitoring. However, the system also needs an effective and completely confidential enforcement mechanism that compels all insurers to comply with the market-stabilizing norms and protocols. This is achieved through club governance. Insurers must be members of the Lloyd’s club to access crucial market information to operate profitably: losing club membership is the ultimate sanction in this market. We thus observe a polycentric system governed by a members’ club. Cases settled by outsiders threaten the stability of the system.
We present a locational model of banking with two types of private banks, honest and opportunisti... more We present a locational model of banking with two types of private banks, honest and opportunistic, and a state bank that is assumed to be less efficient. Opportunistic banks choose whether to honor their contracts with depositors depending on the probability of contract enforcement. We derive three types of equilibria, which depend on institutional quality: a “low” equilibrium in which private banks choose not to enter the market, a “high” equilibrium in which depositors place all their savings with private banks and an “intermediate” equilibrium in which state banks and private banks co-exist. In the intermediate equilibrium, the share of state banks depends inversely on institutional quality and positively on the proportion of opportunistic banks. We also show that when enforcement of deposit contracts is subject to a resource constraint, multiple equilibria can exist, and that depositors’ perception of whether opportunistic behavior is present determines the type of equilibrium ...
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