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The majority of firms in most developing countries are informal. The authors of this paper conducted a field experiment in Sri Lanka that provided incentives for informal firms to formalize. Offering only information about the registration process and reimbursement for direct registration costs had no impact on formalization. Adding payments equivalent to one-half to one month's profits for the median firm led to registration of around one-fifth of firms. A larger payment equivalent to two months' median profits induced half the firms to register. The main reasons for not formalizing when offered incentives included issues related to ownership of land and concerns about facing labor taxes in the future. The degree of bureaucracy in the registration process also seems to matter for those with the incentive to register, with response to the incentives higher in Colombo, where the registration process was easier, than in Kandy. Three follow-up surveys, at 15 to 31 months after the intervention, measure the impact of formalizing on these firms. Although mean profits increased, this appears largely due to the experiences of a few firms that grew rapidly, with most firms experiencing no increase in income as a result of formalizing. The authors also find little evidence for most of the channels through which formalization is hypothesized to benefit firms, although formalized firms do advertise more and are more likely to use receipt books. In qualitative interviews owners of formalized firms also feel their businesses have more legitimacy. Finally, formalizing is found to result in a large increase in trust in the state. Their focus is largely on the private costs and benefits of existing firms formalizing. Within their sample they cannot measure broader impacts of formalization on other firms (who may prosper from not having to compete against informal firms not paying taxes), nor impacts of easier formalization on entry of new firms. Nevertheless, our results suggest that although most informal firms do not want to formalize, given the current private costs and benefits of formalizing, policy efforts that lead to relatively modest increases in the net benefits of formalizing would induce a sizeable share of informal firms to formalize.

Industrialization • Manufacturing and Service Industries • Choice of Technology --- Formal and Informal Sectors • Shadow Economy • Institutional Arrangements

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"Firms in Africa report "regulatory and economic policy uncertainty" as a top constraint to their growth. We argue that often firms in Africa do not cope with policy rules, rather they face deals; firm-specific policy actions that can be influenced by firm actions (e.g. bribes) and characteristics (e.g. political connections). Using Enterprise Survey data we demonstrate huge variability in reported policy actions across firms notionally facing the same policy. The within-country dispersion in firm-specific policy actions is larger than the cross-national differences in average policy. We show that variability in this policy implementation uncertainty within location-sector-size cells is correlated with firm growth rates. These measures of implementation variability are more strongly related to lower firm employment growth than are measures of "average" policy action. Finally, we show that the de jure measures such as Doing Business indicators are virtually uncorrelated with ex-post firm-level responses, further evidence that deals rather than rules prevail in Africa. Strikingly, the gap between de jure and de facto conditions grows with the formal regulatory burden. The evidence also shows more burdensome processes open up more space for making deals; firms may not incur the official costs of compliance, but they still pay to avoid them. Finally, measures of institutional capacity and better governance are closely associated with perceived consistency in implementation"--National Bureau of Economic Research web site.

Criteria for Decision-Making under Risk and Uncertainty --- Firm --- Labor Demand --- Regulation and Business Law --- Formal and Informal Sectors • Shadow Economy • Institutional Arrangements

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This paper focuses on an evaluation and benchmarking of the governance of regulatory agencies in the electricity sector in Latin American Countries (LAC). Using a unique database, we develop an index of regulatory governance and rank all the agencies in the LAC countries. The index is an aggregate number of the evaluation of four key governance characteristics: autonomy, transparency, accountability, and regulatory tools, including not only formal aspects of regulation but also indicators related to actual implementation. Based on 18 different indexes, we analyze the positions of agencies with regard to different aspects of their regulatory governance, considering not only performance in each variable but also scores in the different components of each category. This evaluation allows for the identification of particular country shortcomings regarding governance, and indicates needed improvements. Although the region shows an overall good governance design of their regulatory agencies, the implementation of the independent regulator model still faces several challenges. This is particularly evident in political autonomy and in the informal aspects of governance, where the region shows the largest number of countries with the lowest scores. Trinidad and Tobago and Brazil show the best results and Ecuador, Honduras, and Chile the poorest performances. The rest of the countries vary according to the different indexes. We give each governance variable equal weights and positively test the robustness of our approach using Principal Component Analysis.

Accountability --- Banks and Banking Reform --- Country Strategy and Performance --- Disclosure --- Good Governance --- Governance --- Governance Indicators --- Institutional Arrangements --- Institutional Development --- Judiciary --- Macroeconomics and Economic Growth --- National Governance --- Public Sector Corruption and Anticorruption Measures --- Regulatory Policies --- Regulatory Policy --- Transparency

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Many low-income countries contend with a governance syndrome characterized by a difficult combination of seeming openness, weak institutions, and strong inter-elite contestation for power and resources. In such countries, neither broad-based policy nor public management reforms are likely to be feasible. But are broad-based approaches necessary? Theory and evidence suggest that in such settings progress could be driven by "islands of effectiveness"-narrowly-focused initiatives that combine high-quality institutional arrangements at the micro-level, plus supportive, narrowly-targeted policy reforms. This paper explores whether and how local-level collaborative governance can provide a platform for these islands of effectiveness. Drawing on the analytical framework developed by the Nobel-prize winning social scientist Elinor Ostrom, the paper reviews the underpinnings of successful collaborative governance. It introduces a simple model for exploring the interactions between collaborative governance and political economy. The model highlights the conditions under which coordination is capable of countering threats from predators seeking to capture the returns from collaborative governance for themselves. The relative strength in the broader environment of two opposing networks emerges as key-"threat networks" to which predators have access, and countervailing "trumping networks" on which protagonists of effective collaborative governance can draw. The paper illustrates the potential practical relevance of the approach with three heuristic examples: the governance of schools, fisheries, and road construction and maintenance. It concludes by laying out an agenda for further empirical research, and suggesting what might be the implications of the approach for future operational practice.

Collaborative governance --- Economic Policy, Institutions and Governance --- Environmental Economics & Policies --- Governance Indicators --- Institutional arrangements --- Inter-elite contestation --- Macroeconomics and Economic Growth --- National Governance --- Political economy --- Poverty Reduction --- Public management reforms --- Public Sector Corruption & Anticorruption Measures --- Public Sector Development

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This paper focuses on an evaluation and benchmarking of the governance of regulatory agencies in the electricity sector in Latin American Countries (LAC). Using a unique database, we develop an index of regulatory governance and rank all the agencies in the LAC countries. The index is an aggregate number of the evaluation of four key governance characteristics: autonomy, transparency, accountability, and regulatory tools, including not only formal aspects of regulation but also indicators related to actual implementation. Based on 18 different indexes, we analyze the positions of agencies with regard to different aspects of their regulatory governance, considering not only performance in each variable but also scores in the different components of each category. This evaluation allows for the identification of particular country shortcomings regarding governance, and indicates needed improvements. Although the region shows an overall good governance design of their regulatory agencies, the implementation of the independent regulator model still faces several challenges. This is particularly evident in political autonomy and in the informal aspects of governance, where the region shows the largest number of countries with the lowest scores. Trinidad and Tobago and Brazil show the best results and Ecuador, Honduras, and Chile the poorest performances. The rest of the countries vary according to the different indexes. We give each governance variable equal weights and positively test the robustness of our approach using Principal Component Analysis.

Accountability --- Banks and Banking Reform --- Country Strategy and Performance --- Disclosure --- Good Governance --- Governance --- Governance Indicators --- Institutional Arrangements --- Institutional Development --- Judiciary --- Macroeconomics and Economic Growth --- National Governance --- Public Sector Corruption and Anticorruption Measures --- Regulatory Policies --- Regulatory Policy --- Transparency