Policy Briefs

Currently, audit reports issued in the USA do not reveal the name of the lead partner at the audit firm who conducted the audit. In December 2015, PCAOB (Public Company Accounting Oversight Board) approved a new rule which mandates that the lead partner’s name be disclosed in audit reports. This rule was approved by the Securities and Exchange Commission (SEC) in May 2016 and will come into effect after January 2017 . In this paper, we analyse partner incentives under the two regimes (with and without disclosure of partner names) and explore the possible impact of the new rule on audit quality. This paper highlights an important tussle between monitoring and reputation incentives in a partnership under two different information structures - a collective reputation environment and an individual reputation environment. Thus, our paper contains a more general message but we set it in the audit market environment for two reasons - a) To analyse the impact of the proposed rule and b) To develop a rich model which incorporates many details particular to the audit industry in the hope that this model can be used for analyzing several questions related to the audit market.

The current paper models system risk in the South African banking sector and identifies the most vulnerable banks to system risk. Modelling systemic risk enables policy makers and regulators to monitor the build-up of imbalances and vulnerabilities of the financial system. Failure to model system risk can lead to disastrous economic consequences as it was the case in South Africa during global financial crisis that emanated from the US housing market and impaired the private and public sector to easily access financing: South African economy lost almost a million jobs.

A major policy issue in developing economies is whether a faster rate of physical capital accumulation is a key determinant of growth transitions in output per capita, or whether growth shifts are primarily the outcome of an ‘unexplained’ or ‘mysterious’ total factor productivity (TFP)/technology progress component. To shed some new light on the issue, this paper hypothesises that the saving rate and the growth rate of technology are interdependently determined by a common exogenous source across regimes, so that an exogenous shock to the saving rate determines long-run growth transitions. We further advance the idea that in an open-economy setting the saving rate, rather than the investment rate itself, serves as the most suitable measure of the quality or productivity of investment, that is, whether changes in capital investment induce changes in the growth rate of technology.

Experts in climate change have long stressed the need for a transfer of environmentally friendly technologies from developed to developing countries to help the latter adopt a low-carbon development path. It is typically argued that the spillover of resource-conserving technologies will reduce resource use in both developing and developed economies and hence potentially “save the world”. Policy-makers have seized upon these simple conclusions to advocate straightforward policy prescriptions, such as “the importance of technology improvements, advanced technologies, and....induced technological change for achieving the stabilization targets....” (IPPC 2007). The problem is of course that the interaction between technological choices and environmental policy is not as simple or straightforward as this. Indeed, the manner in which regulated agents (consumers or industries) respond to technological change varies considerably. For this reason, the ultimate outcome of technology-focused policies is highly indeterminate.

In many developing countries, there is wide inequality in the distribution of health, with those at the top end of the socioeconomic scale having better health outcomes. Mitigating the inequalities in health is the priority of most health care systems, including the National Health System in South Africa. In recent decades, many low- and middle-income countries have experienced an epidemiological transition from communicable to non-communicable diseases (NCDs). The prevalence of NCDs varies with socioeconomic status, and is driven by adopted lifestyle such as smoking, harmful alcohol use, and obesity among others. The idea is that the gradient in inequality in health between the poor and the rich is likely to depend on differences in their adopted lifestyle, and socioeconomic-related inequalities in health will widen if the negative effects unhealthy practices are concentrated among the poor. This has negative consequences on human capital development, and imposes a growing economic burden on society. Numerous studies that have attempted to examine the contribution of lifestyle factors on income-related inequality in health, have done so without considering health outcomes that are directly associated to these factors. We therefore examine the contribution of smoking and alcohol consumption to income-related inequality in health by incorporating measures of health that are directly associated to smoking and alcohol use.

High speed broadband access creates potential productivity gains and has a positive impact on economic growth. For a country to achieve higher broadband rollout, it is imperative that the right investment climate is created to encourage fibre network rollout. As a market characterised by strong network effects, much of the focus of European Regulators have been on increasing broadband access by implementing appropriate regulations to encourage uptake and investment. This has also come onto the agenda in South Africa with the ICT White Paper, released in 2016. However, while open access regulations have managed to increase service-based competition and the uptake of broadband services in many European countries, it has not had the desired effect on investment.

Monetary policy, post Bretton Woods, saw the emergence of the short-term interest rate as the primary policy instrument. However, in the wake of the financial crisis, balance sheets have, again, become part the monetary policy toolkit, now empowered to perform more than an automated role in policymaking. The present-day incarnation of balance sheet policy differs in character, though, from historically used balance sheet mechanisms. We now observe that under certain monetary policy regimes, balance sheet policies operate independently from movements in the central bank policy rate. The independence of these monetary policy tools contests the conventional wisdom on the role of central bank balance sheets in policymaking (Borio and Disyatat, 2010). One of the implications is that balance sheets potentially could be used to extend the policy reach of central banks to promote financial stability.

Addressing the large energy consumption of Hotels and tourist accommodation establishments requires an understanding of the factors that drive this consumption. This enquiry is particularly crucial for the South African economy which has experienced significant strain in meeting its domestic energy demand. The nation has come under severe scrutiny by the public, having to resort to power cuts, termed “load shedding”, as it struggles to manage the increasing pressure on demand. This pressure co-occurs with increases in tourist arrivals in the country, a positive occurrence for the nation’s tourism sector, but detrimental to the already strained energy resources. The tourism sector has been identified as crucial to meeting the unemployment challenge in the nation and as a significant contributor to the National Income. The growth in the sector as indicated by the increase in tourist arrivals, however, places additional pressure on the already strained energy resources as the country struggles to meet the energy needs of the tourist population, in addition to the local population. Sustaining the positive socio-economic impact of the sector hence requires that its impact on already strained resources be adequately managed.

Kenya has five major water towers classified as montane forests namely; Mount Kenya, the Abardares range, the Mau forest complex, Mount Elgon and Cherengani Hills. These forests are mostly surrounded by densely populated areas because they provide water for intensive agriculture. They form the upper catchment of all major rivers in Kenya and supply a range of ecosystem services such as: river flow regulation; flood mitigation; water storage; wildlife habitat; and water purification among others. However, despite the significance of these forest resources, they have continued to be degraded due to the rising population and increasing demand for these services. For instance, between 2000 and 2010, deforestation in Kenya’s water towers amounted to an estimated 50,000 hectares equivalent to a cash revenue of ksh. 1,362 million in 2010 hence the incentive for rampant deforestation. Whereas, the cumulative negative effects of deforestation on the economy through reduction in regulating services was estimated at ksh 3,652 million/year more than 2.8 times the cash revenue of deforestation. This is in light of government incentives aimed at deepening community participation through participatory forest management (PFM).

When examining the degree of financial risk protection afforded by the health care sector, one measure often used is the proportion of health expenditure shares that exceed a pre-determined threshold. This measure is referred to as catastrophic health care payments, and the pre-determined threshold, although arbitrary, is often set at 10%, 20% and 40%. Allowing for a range of thresholds offers the policymaker a lens through which to examine healthcare finance. The process underpinning the calculation of catastrophic health care payments is predicated on an approach outlined by the World Health Organization. That approach assumes household economies of scale to follow a constant elasticity formulation with a value of 0.56, i.e., a 10% increase in household size yields a 5.6% increase in household food expenditure.