Edouard Al-Dahdah Senior Public Sector Specialist World Bank

1. Understanding Reform
Through Political Economy
September 9, 2014
PRESENTED BY EDOUARD ALDAHDAH
MENA Knowledge Sharing and
How-To in Subsidy Reform:
Regional Workshop

2. Why Political Economy?
Helps sort through the economic and political factors
responsible for variation in development outcomes.
Strategic
Interaction
of Actors
Specific
Institutional
Context
Feasible
Policy-
Making
Space

3. How-To Expand the Space for Reform
Current Policy-
Making Space
Ideal Space
for Change

4. Identifying Binding Constraints to
Reform
Information
Asymmetries
Collective Action
Problems Lack of Trust
Rent-Seeking Delegation
Problems
Institutional
Manipulation

5. Collective Action Problems
Motivational Problems
Individual vs. Collective Benefits
Temptation to “Free Ride”
Overuse of resources
Information Problems
Missing Information
Asymmetric Information
Principal-Agent Problems

6. Lack of Trust and Rent-Seeking
Distrust: Makes potential supporters of change risk averse, severely
limiting policy-makers’ capacity to reform.
Rent-Seeking: Achieving economic gain by manipulating the political
or social environment.

7. Delegation Problems
When a principal transfers consulting, decision
or implementation power to the agent
(implementer).
But… the principal and the agent have
conflicting interests, resulting in
implementation problems.
Because the principal does not have complete
information it can’t identify and address the
misalignment.

8. Institutional Manipulation
Manipulating the “rules of the game” to achieve results. For
example, agenda setting, when an actor uses their power to set
the agenda in order to ensure a more favorable outcome for the
actor.

9. Solutions to Binding Constraints
Leadership Communication Bundling
Timing Sequencing Agenda Setting

10. Communication
• Helps create support
for reform
• Improves participation
in collective efforts
Increases
Trust
• Solving collective
action problems
related to information
Corrects
Information
Asymmetries

11. Bundling
The reform you want to
pass Another reform
in one package…

12. Leadership
¨ Helps coordinate coalitions
¨ Disseminate information
¨ Can jumpstart a process
¨ Incentivize participation in the reform process

13. Timing
Good Timing Can Help Reform Progress
• Political Factors (election cycles, shifts in public
opinion, changes in policy-making structures)
• Economic Factors (growth, inflation, unemployment)

14. Sequencing
Sequencing and Pacing can help build support and
ownership of reform