Multilateralism for International Public Goods

Abstract

Noting that a major purpose of multilateral institutions is to deliver international public goods, this paper applies the theory and practice of public economics, as well as papers in this section, to the potential and challenges facing these institutions. First, I show that deviations from the standard model of fiscal decentralization are reflected in the experience of multilateral institutions. Next, I consider the case of one of the largest of such institutions, the World Bank, and show how the nature of the international public good it was originally designed to produce—the pooling of investment risk in developing countries—has changed to those of climate change, peace, and knowledge. I suggest that, in order to deliver on this new set of public goods, the World Bank needs to change the way it is organized—away from the country-based model to regional and subnational groupings—and shift its strategy to one where knowledge leads lending rather than the other way around.