Governance of Crown Financial Assets (WP 98/02)

Abstract

This paper investigates the agency problems associated with the public management of a large financial asset portfolio. After considering the relevant theoretical and empirical literature, a set of institutional arrangements are presented that should reduce the extent of the potential agency problems faced. Key design features include: mechanisms for enhancing policy credibility; the use of existing market mechanisms and regulation where possible; and the creation of a public-sector institution to perform administrative functions. The paper does not consider the issues of optimal fiscal policy, or the appropriate risk tolerance for the Crown, although the conclusions drawn from this study may contribute to these debates.