The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. Acknowledgements: We would like to thank Anke Höffler for research assistance in section 2 and Chris Adam, Janine Aron, Kees Burger, Bill Kinsey, Remco Oostendorp, Ritva Reinikka, Francis Teal, Steve Younger and three referees for comments. Abstract: Africa has had slow growth and a massive exodus of capital. In many respects it has been the most capital-hostile region. We review and interpret the aggregate-level and microeconomic literatures to identify the key explanations for this performance. There is a reasonable correspondence of the two sets of evidence, pointing to four factors as being important. These are a lack of openness to international trade; a high-risk environment; a low level of social capital; and poor infrastructure. These problems are to a substantial extent attributable to government behaviour and the paper includes a review of the political economy literature which addresses that behaviour

NOTE: We will make final revisions to this paper in July 2000, at which time we will make reference to all pertinent papers that have come to our attention by June 30, 2000. If anyone reading this survey knows of a pertinent paper not presently included in the list of references, please send a copy or a reference to one of us. *Djankov is Financial Economist at the World Bank. Murrell is Professor of Economics and Chair of the Academic Council of the IRIS Center, University of Maryland. We would like to thank Judy Hellerstein, John McMillan, John Nellis, and Jan Svejnar for helpful advice and Wooyoung Kim and Tatiana Nenova for research assistance. This research was made possible through support provided by the World Bank and by the U.S. Agency for International Development under Cooperative Agreement No. DHR-0015-A-00-0031-00 to the Center for Institutional Reform and the Informal Sector (IRIS). The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the IRIS Center, US AID, the World Bank, its Executive Directors, or the countries they represent. Enterprise Restructuring in Transition: A Quantitative Survey Abstract. There are now over 125 empirical papers that analyze the process of enterprise restructuring in transition

Online reputation mechanisms are emerging as a promising alternative to more traditional trust building mechanisms, such as branding and formal contracting, in settings where the latter may be ineffective or prohibitively expensive; a lot of electronic trading communities fall under these categories. Although a number of commercial websites already employ various forms of reputation mechanisms, rigorous research into their properties is still in its infancy. This fledgling field can benefit from past results in economics and game theory. Moreover, in order to translate the stylized results of game theory into concrete managerial guidance for implementing and participating in effective reputation mechanisms further advances are needed in a number of important areas: First, the design space of such mechanisms needs to be scoped and the effects of different design choices on performance need to be better understood. Second, the economic efficiency of various classes of reputation mechanisms needs to be quantified and compared to that of alternative mechanisms for building trust. Third, the robustness of those mechanisms against boundedly rational players, noisy ratings and strategic manipulation needs to be studied and improved. This paper surveys past results that have been derived in a variety of contexts, but which are relevant as a basis for building online reputation systems, presents two analytical models that illustrate the role of such systems in electronic markets and identifies opportunities for further MS/OR research in this fascinating area.

Using data from the Tanzania Social Capital and Poverty Survey (SCPS), a large scale survey which asked individuals about the extent and characteristics of their associational activity and their trust in various institutions and individuals, we construct a measure of “social capital ” in rural Tanzania. By matching this measure of social capital with data on household incomes in the same villages both from the SCPS and an earlier household survey, the Human Resources Development Survey (HRDS) we show that “social capital ” is indeed both capital, in that it raises incomes, and social, in that household outcomes depend on village not just household social capital. The magnitude of social capital’s effect on incomes is impressively large: a one standard deviation increase in village social capital increases household expenditures per person (a proxy for income) by at least 20 to 30 percent. This impact is as large as an equivalent increase in non-farming assets or tripling the level of education. The data from the two surveys also allow the identification of some of the proximate channels through which social capital affects incomes: better publicly provided services, greater use of modern agricultural inputs, more community activity, and greater use of credit in agriculture. The findings, interpretations, and conclusions expressed and in this paper are entirely those of the authors. They do not necessarily reflect the views of the World Bank, its Executive Directors, or the countries they represent. 1

This paper concerns the difficulties associated with establishing a time at which a market will operate. We first describe the experience of several dozen markets and submarkets, from entry-level professional labor markets in the United States, Canada, England, and Japan, to the (American) market for postseason college football bowls. The difficulties these markets have experienced in coordinating the timing of transactions have been decisive in determining how they are organized today. The paper develops a framework in which to address the timing of transactions and the tendency observed in many of these markets for transactions to become earlier and earlier.

This paper introduces a new model of exchange: networks, rather than markets, of buyers and sellers. It begins with the empirically motivated premise that a buyer and seller must have a relationship, a “link, ” to exchange goods. Networks- buyers, sellers, and the pattern of links connecting them- are common exchange environments. This paper develops a methodology to study network structures and explains why agents may form networks. In a model that captures characteristics of a variety of industries, the paper shows that buyers and sellers, acting strategically in their own self-interests, can form the network structures that maximize overall

The use of the term institution has become widespread in the social sciences in recent years, reflecting the growth in institutional economics and the use of the institution concept in several other disciplines, including philosophy, sociology, politics, and geography. The term has a long history of usage in the social sciences, dating back at least to Giambattista Vico in his Scienza Nuova of 1725. However, even today, there is no unanimity in the definition of this concept. Furthermore, endless disputes over the definitions of key terms such as institution and organization have led some writers to give up matters of definition and to propose getting down somehow to practical matters instead. But it is not possible to carry out any empirical or theoretical analysis of how institutions or organizations work without having some adequate conception of what an institution or an organization is. This paper proposes that those that give up are acting in haste; potentially consensual definitions of these terms are possible, once we overcome a few obstacles and difficulties in the way. It is also important to avoid some biases in the study of institutions, where institutions and characteristics of a particular type are overgeneralized to the set

Online feedback mechanisms harness the bidirectional communication capabilities of the Internet to engineer large-scale, word-of-mouth networks. Best known so far as a technology for building trust and fostering cooperation in online marketplaces, such as eBay, these mechanisms are poised to have a much wider impact on organizations. Their growing popularity has potentially important implications for a wide range of management activities such as brand building, customer acquisition and retention, product development, and quality assurance. This paper surveys our progress in understanding the new possibilities and challenges that these mechanisms represent. It discusses some important dimensions in which Internet-based feedback mechanisms differ from traditional word-of-mouth networks and surveys the most important issues related to their design, evaluation, and use. It provides an overview of relevant work in game theory and economics on the topic of reputation. It discusses how this body of work is being extended and combined with insights from computer science, management science, sociology, and psychology to take into consideration the special properties of online environments. Finally, it identifies opportunities that this new area presents for operations research/management science (OR/MS) research.

This paper offers a systematic exploration of reputation mechanism design in trading environments with opportunistic sellers of commonly known cost and ability parameters, imperfect monitoring of a seller’s actions, and two possible seller effort levels, one of which has no value to buyers. The objective of reputation mechanisms in such pure moral hazard settings is to induce sellers to exert high effort as often as possible. I study the impact of various mechanism parameters (such as the granularity of solicited feedback, the format of the public reputation profile, the policy regarding missing feedback, and the rules for admitting new sellers) on the resulting market efficiency. I find that maximum efficiency is bounded away from the hypothetical firstbest case where sellers can credibly precommit to full cooperation by a factor that is related to the probability that cooperating sellers may receive “unfair ” bad ratings. Furthermore, maximum efficiency is independent of the length of past history summarized in a seller’s public reputation profile. I apply my framework to a simplified model of eBay’s feedback mechanism and conclude that, in pure moral hazard settings, eBay’s simple mechanism is capable of inducing the maximum theoretical efficiency independently of the number of recent ratings that are being summarized in a seller’s profile. I derive optimal policies for dealing with missing feedback and easy online identity changes. Finally, I show that if the number of buyers is large, the results obtained in the monopoly case are also approximately valid in settings where multiple sellers of different reputations simultaneously offer auctions for identical goods. Key words: reputation mechanisms; moral hazard; online auctions; eBay

have provided excellent research assistance. I thank Stephen Machin and three referees for