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Himmelberg, Hubbard, and Love combine the agency theory of the firm with risk diversification incentives for insiders. Principal-agent problems between insiders and outsiders force insiders to retain a larger share in their firm than they would under a perfect risk diversification strategy. The authors predict that this higher share of insider ownership and the resulting exposure of insiders to higher idiosyncratic risk will result in underinvestment and higher cost of capital. Using firm-level data from 38 countries, the authors provide evidence in support of their theoretical model, showing that the premium for bearing idiosyncratic risk varies between zero and six percent and decreases in the level of outside investor protection. The results of the study imply that policies aimed at strengthening investor protection laws and their enforcement will improve capital allocation and result in higher growth. This paper-a product of Finance, Development Research Group-is part of a larger effort in the group to study corporate governance and access to finance. The authors may be contacted at cph15@columbia.edu or ilove@worldbank.org.

Capital Investment --- Capital Stock --- Contract --- Debt Markets --- Economic Theory and Research --- Emerging Markets --- Equity --- Equity Stakes --- Finance --- Finance and Financial Sector Development --- Financial Development --- Financial Literacy --- Holding --- Investment --- Investment and Investment Climate --- Investment Decisions --- Investor --- Investor Protection --- Investor Protections --- Labor Policies --- Legal Environment --- Macroeconomics and Economic Growth --- Market --- Microfinance --- Outside Investors --- Ownership Structure --- Political Economy --- Private Sector Development --- Return --- Risk Aversion --- Shareholders --- Social Protections and Labor

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This paper examines possible ways for a developing country to finance budget deficits from domestic resources. It does so by analyzing Pakistan's National Savings Scheme (NSS). The NSS has a number of unusual attributes, and its impact upon the economy of Pakistan is not clear, but given Pakistan's chronic fiscal difficulties, the NSS is of great importance in financing the public sector deficit. We use an econometric model to analyze the relationship between the demands for NSS deposits and various other financial instruments, in particular, bank deposits, and foreign-currency deposits. We conclude that NSS and bank deposits are net substitutes, as are NSS and foreign-currency deposits. Bank deposits and foreign-currency deposits, however, seem to be neither substitutes nor complements. Also, the estimated income elasticity of the demand for bank deposits is negative, while that of foreign-currency deposits is positive, and that of NSS is not significantly different from zero. Finally, there is evidence that foreign-currency deposits are a net substitute for NSS deposits. Thus, there is some empirical evidence that foreign currency deposits have absorbed part of the demand for NSS deposits. Accordingly, the availability of foreign-currency deposits may have reduced the ability of the government to finance itself.

Banks and Banking --- Budgeting --- Macroeconomics --- Public Finance --- Financial Markets and the Macroeconomy --- Fiscal Policy --- Economic Development: Financial Markets --- Saving and Capital Investment --- Corporate Finance and Governance --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Debt --- Debt Management --- Sovereign Debt --- National Budget --- Budget Systems --- Macroeconomics: Consumption --- Saving --- Wealth --- Banking --- Public finance & taxation --- Budgeting & financial management --- Bank deposits --- Government debt management --- Budget planning and preparation --- Government debt planning --- Private savings --- Financial services --- Public financial management (PFM) --- National accounts --- Banks and banking --- Debts, Public --- Budget --- Saving and investment --- Pakistan

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In Local Heroes, Kathryn Stoner-Weiss analyzes a crucial aspect of one of the great dramas of modern times--the reconstitution of the Russian polity and economy after more than seventy years of communist rule. This is the first book to look comprehensively and systematically at Russia's democratic transition at the local level. Its goal is to explain why some of the new political institutions in the Russian provinces weathered the monumental changes of the early 1990s better than others. Using newly available economic, political, and sociological data to test various theories of democratization and institutional performance, Stoner-Weiss finds that traditional theories are unable to explain variations in regional government performance in Russia. Local Heroes argues that the legacy of the former economic system influenced the operation of new political institutions in important and often unexpected ways. Past institutional structures, specifically the concentration of the regional economy, promoted the formation of political and economic coalitions within a new proto-democratic institutional framework. These coalitions have had positive effects on governmental performance. For democratic theorists, this may be a surprising conclusion. However, it is possible, as Stoner-Weiss suggests, that the needs of democratic development may be different in the short run than in the long run. The "local heroes" of today may be impediments to the further development of democracy tomorrow. This provocative work, solidly grounded in research and theory, will interest anyone concerned with issues of economic and political transition.

Regional planning --- Local government --- Russland. --- Russia (Federation) --- Economic policy --- Academy of Sciences. --- Blalock, Hubert. --- Brezhnev Constitution (1977). --- Britain. --- Catherine the Great. --- Enlightenment. --- Goskomstat branch. --- Group of Thirteen. --- Huntington, Samuel. --- Kazakhstan. --- Krestianinov, Evgenii. --- Law on Education (1992). --- Liberal Democratic Party. --- Making Democracy Work (Putnam). --- Ministry of Education. --- agriculture. --- associationalism. --- barter agreements. --- budgets. --- capital investment. --- capitalism. --- civic culture. --- collective farms. --- communitarian theory. --- cultural hypotheses. --- debtor nations. --- decentralization. --- economic concentration. --- education. --- elections. --- factionalization. --- federalism. --- freedom of speech. --- glava administratsii. --- governors. --- housing. --- ideological polarization. --- incumbents. --- industrialization. --- institutional performance. --- kindergartens. --- labor force concentration. --- malyi soviets. --- military industrial complex. --- nationalism. --- neo-institutionalism. --- oblispolkom. --- oligarchy. --- pace of economic reform. --- population statistics.