Failures of States and markets - regulation and reform in developing countries

At the turn of the century, Jean-Jacques Laffont got involved in the analysis of the specific problems raised by regulated industries in developing countries and in their reform. He drew the implications of the high social cost of public funds, due to inefficient taxation. Although foreign aid mitigates this problem somehow, it is not perfectly innocuous for these countries. Special problems occur also because of the shortage of trained civil servants, capture, widespread corruption, and the inability of governments to commit credibly, The universal service constraint may then lead to some specific solutions in such a setting. He also used his theory of incentives to tackle some reform problems, like downsizing of the public sector, and to develop a positive theory of the privatization of natural monopolies. He complemented his theoretical investigations by a number of applications, including econometric tests, case studies, and simulations.