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In oil-dependent countries, a major issue is how to stabilize fiscal spending when government revenue fluctuates along with the international price of oil. A stabilization fund would allow the government to pull through an oil price trough and absorb windfall revenue when prices are high. This paper focuses on two key issues. First, the paper proposes to base government spending on moving averages of past oil prices that are shown to behave nearly as a random walk. Second, it uses Monte Carlo simulations of a fiscal policy model to look at the probability that a given level of assets in the stabilization fund is exhausted over a certain number of years. The simulations show that with a fiscal policy based on moving averages over three to five years, a stabilization fund of about 75 percent of 2004 oil revenue would be adequate, which, in Nigeria, would equate to US$16-18 billion.

Electronic books. -- local. --- Petroleum industry and trade -- Nigeria -- Finance. --- Petroleum products -- Prices -- Nigeria. --- Petroleum products --- Petroleum industry and trade --- Prices --- Finance. --- Mazut --- Energy industries --- Oil industries --- Petroleum --- Hydraulic fluids --- Refining --- Budgeting --- Macroeconomics --- Public Finance --- Taxation --- Energy: Demand and Supply --- Business Taxes and Subsidies --- Fiscal Policy --- National Budget --- Budget Systems --- National Government Expenditures and Related Policies: General --- Public finance & taxation --- Budgeting & financial management --- Oil prices --- Oil, gas and mining taxes --- Fiscal policy --- Budget planning and preparation --- Expenditure --- Budget --- Expenditures, Public --- Nigeria

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In the 21st century, many developing countries will become emerging markets and will no longer be in need of the carrot-and-stick approach to development assistance most prevalent today: development financing made available conditional on certain policies and interventions. This paper suggests that interactions between development agencies and recipient governments are mostly about inputs deemed (but not known) to contribute to improvements in living standards in recipient countries, rather than outcomes. The paper argues that the development marketplace is beset by market imperfections because of externalities, principal-agent problems, and decision making under uncertainty, which not only make it difficult to achieve the right outcomes, but also take away incentives to learn about outcomes. A fundamental rethink of responsibilities and accountabilities in the development business would make sure that development outcomes are traded in the development marketplace. It would put recipient countries in charge of contracting development agencies to provide these outcomes. Development agencies would commit to and be held financially accountable for outcomes, that is, real improvements in welfare indicators. The paper describes the role of the evaluation function in aligning incentives with the ultimate goal of improving lives and provides examples of emerging solutions.

Debt Markets --- Development Economics & Aid Effectiveness --- Development Outcomes --- Economic Theory & Research --- Evaluation Function --- Externalities --- Finance and Financial Sector Development --- Labor Policies --- Macroeconomics and Economic Growth --- Market Failure --- Poverty Impact Evaluation --- Poverty Reduction --- Principal-Agent --- Social Protections and Labor

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