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8 one agent (Hawkins et al 2006). However, the higher the degree of discretion left to the agent, the greater the opportunities for opportunistic behavior of the agent. The second mechanism for control is the reporting requirements of the agent and the monitoring effort of the principal. Hawkins et al (2006) emphasize ex post reporting and distinguish here between regular control type reporting (“police patrol”) and event based reporting (“fire alarms”) which are specified in the delegation contract. These requirements are designed to monitor the routine operation, but there are ex ante reporting requirements as well for major changes, investments and other changes. An event based ex post reporting and high discretion in reporting ex ante changes leaves considerable room for opportunistic behavior. The common characteristic of development aid – to manage the transfer process by allocating it to individually assessed projects – can thus be seen as a compromise between discretion and rules. The identification, evaluation and implementation of individual projects leaves considerable discretion to agent, but the rules for this process are defined by the principal. The major advantage for the principal is the ex ante reporting of planned aid projects which is the major interaction between aid ministries and aid executing organizations in bilateral aid. In the MBD, the reporting requirements to a board serve to allow the control of the member countries as collective principals. A third mechanism is to use screening and selection procedures to find agents – at the leadership and agency level – with preferences similar to those of the principal. This will allow the principal to grant more discretion to the agent and to lower his monitoring efforts as he can hope that the agent will pursue actions similar to those as if the principals would act on his own. In the case of MDB, the collective principals have already created agents according to their collective preferences once they set up the organization, leaving the selection device mostly for the leadership positions and the hiring practices. Here, however the choices of leaders are relatively limited if the hiring process is not competitive. This tends to be the case quite often and additionally the hiring is restricted according to national quota. A fourth mechanism to control the agent is to build checks and balances to the organizational design of the agent. Within an organization, the principal can establish organization units with overlapping, competing or controlling functions that provide information to the principal about the behavior or performance of the agent which is not controlled by the agent, thus reducing the informational asymmetry. Another approach is to establish organizations with overlapping functions to provide to some extent competition between the organizations and thus endow the principal with additional information. In the context of the MDB, the creation of the regional developtries with a shield against sceptic voters in their domestic principal-agent relationship (Milner 2006).
9 ment banks may be seen as overlapping agents which provide similar information to their collective principals. The fifth mechanism is to apply sanctions for opportunistic behavior and to reward behavior conforming to the principal intentions. For governmental agencies, the most important sanctions and/or reward are changes in the size of the budget. Successful agents are usually rewarded with larger budgets allowing them to fulfill their function more comfortably and to reap tangible side benefits easier. The use of these sanctions and rewards is easier applicable in the context of bilateral development aid (and for the aid program of the European Union), as they depend on taxes as their source of revenues and are subject to the procedures of parliamentary budgetary control. These instruments are not available if the development bank is bank-like in its financing structure as it relies on capital markets and return flows of funds for its growth. This is the case for the European Investment Bank (EIB) for its EU wide lending and the European Bank for Reconstruction and Development (EBRD). It was also the original position of the World Bank until in 1960, when IDA facilities were added which make the World Bank subject to a budgetary control procedure in the principal member countries on a tri-annual basis. 5 In addition, the principals can reward an agent by adding tasks which have a growth effect on the organization for which the expansion of regions outside the EU is an example for the EIB. These control mechanisms are used in a combination depending on the circumstances of the principal-agent relationship and the balancing of the benefits of delegation by the principals against the costs of control and the degree of slack by the agent that can be attained by use of the control mechanisms. As the use of control mechanisms is resource consuming to the principal and the use of sanctions may be damaging to the reputation of the agent and thus to the delegation itself, resulting in costs, the principal will weigh these against the cost of the slack of the agent. As a result, agents will always have a degree of autonomy. The MDBs face collective principals who might disagree on the degree of control and the amount of resources they are willing to commit for control, thus increasing their autonomy further. The major sources of autonomy are, however, the complexity of the tasks and the degree of specialization required to perform these tasks, resulting in an informational advantage on behalf of the MDB as agents and their own control of budgetary resources via the refinancing via capital markets. 5 Formally, the World Bank consists of two separate organizations, the IBRD (International Bank for Reconstruction and Development) for capital market based loans and IDA (International Development Association) for the tax-based financing.
Page 1 and 2: WORKING PAPER ON MANAGEMENT IN ENVI
Page 3 and 4: SUMMARY Integrated Water Resources
Page 5 and 6: 1 I. INTRODUCTION Integrated Water
Page 7 and 8: 3 formance gap. Considerable attent
Page 9 and 10: 5 ade saw then the application of t
Page 11: 7 donor countries (and to some exte
Page 15 and 16: 11 (Kapur 2002). The gentlemen’s
Page 17 and 18: 13 ing and selection seems to be wo
Page 19 and 20: 15 presidents who have undertaken t
Page 21 and 22: 17 the reorganization in 1987 creat
Page 23 and 24: 19 Figure 1: Percent of World Bank
Page 25 and 26: 21 Figure 2: A comprehensive framew
Page 27 and 28: 23 VI. THE DEVELOPMENT OF THE WATER
Page 29 and 30: 25 major problems. The internal ass
Page 31 and 32: 27 breaking the stalemate of dam co
Page 33 and 34: 29 works, the World Water Council a
Page 35 and 36: 31 cation and explanation of the Ba
Page 37 and 38: 33 result of a combination of cause
Page 39 and 40: 35 Hawkins D.G., Lake D.A., Nielson
Page 41: 37 World Bank (1996c) Operations Ev

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