ABSTRACT
This chapter presents discussions on the concept of “effective institutions,” arguing that effectiveness covers a gamut of outcomes that can be seen as being hierarchical, and that a critical look at risks and vulnerabilities is imperative in order to analyze the scope for strengthening institutions. It considers is that of institutional and capacity development as this has been identified as one of the most ubiquitous problems constraining development in many low-income countries covered in the study. In order to ascertain how effective institutions can result, it is relevant to consider the nature of risks in public sector management, including these constructs: degree of risk tolerance and appetite of government for reforms, risk-ambiguity aversion, and decision regret. Downside risks to outlook for development in some low-income countries are centered predominantly on capacity constraints in the institutions, including at central and local levels of the public sector.
