Gregorio Impavido, Alberto R. Musalem, and Dimitri Vittas wage rates of less than $500 per month. In such cases, major foreign companies would have little interest in investing directly in setting up a local branch or agency.

**Table 3: The supply of pensions services**

|Function|Description|EconomiesofScale/Scope|
|---|---|---|
|Collectionof<br>contributions|Collectionofcontributions<br>fromemployers and<br>distributionofthesame to<br>fund managers|Economiesofscopestemfromthreesources:i)employershaveto<br>filldifferentformsatdifferenttimesfordifferentcollectionservices;<br>ii)thecostbornebytheemployer decreaseswiththenumberof<br>collection agencies; andiii)formscanbeconsolidatedinaunique<br>collectionprocess.|
|||Small countries withwell functioningpersonal incometaxation<br>system maywanttocreateanationalizedmonopoly forthe<br>collectionofcontributors.Smallcountrieswithbadlyfunctioning<br>personalincometaxationsystem may wanttocreateselfregulated<br>open capitalcompanywithshareholdersincludingtheentities<br>benefitingfromthe collectionservices.(Mexico)|
|Dataprocessing|Dataentry control|Economiesof scopestemfromthespecializedknow-howand<br>technology linkedto thisfunction.However,costsfrom'data<br>capture"areproportionalto thenumberofparticipantsand small<br>countrieswouldbebeKteroffbysubcontracting thisfunctiontoan<br>extemal(offshore)entity.Thisis commonforcredit carddata<br>processingactivity.|
|Accountingand<br>maintenanceof<br>records<br>Clientservices|Valuationof assetsand<br>liabilitiesforthefundorin<br>individualaccounts,<br>reconciliation of accountsto<br>produce updated balances<br>Distributionofaccount<br>statements,dealingwith<br>complaints,andanswers to<br>enquiries.|Economiesofscalestemfromthefixedcostsofspecialized<br>hardwareand software. Smallcountrieswithfewcontributorswould<br>notbenefitfromtheseeconomiesandwould bebeKteroffby<br>subcontractingabroadthisfunction.<br>Costsareusually proportionalto thenumberofparticipantsto the<br>system anddonotgenerateeconomiesofscale.Smallcountries<br>wouldonlybeconstrainedinthelocaldevelopmentofthisfunction<br>bytheexcessive standardsrequired bytheregulation.|
|Portfolio<br>investment<br>management|Assetmanagement(activeor<br>passive)andanalysis of<br>investment opportunities.|Notcharacterizedbylargesunkcosts.The lackoffinancial<br>expertise,illiquidityofthemarket,andconcentrationofinterestsin<br>smallcountriescouldleadtoprice manipulationorconflictof<br>intefrsts.Smallcountries wouldWe-bettK<br>offbyallowingf6reign<br>assetmanagerstotake care ofthis function.|
|Insurance|Related totheprovisionof<br>benefits|Small countries arecharacterizedby limitedpoolsandlackofasset<br>diversification.Forthisreason,theprovisionofinsurancebenefits<br>(disability, survivorship,orlongevityinsurance)shouldeitherbe<br>heavilyreinsuredabroadorsimplyprovidedby foreigncompanies<br>throughcross borderservices.|
|Paymentof<br>benefits|Calculationofbenefitsand<br>transfer ofcashto<br>beneficiaries' accounts.|Economiesof scalestem fromthewidespread geographic<br>coverage.Smallcountrieswithpoor distributionnetworks(banksor<br>postoffices)wouldbebetteroff bycentralizingthisfunction.The,<br>optionofaselfregulatedopen capital companywithshareholders<br>includingentitiesbenefitingfromthedistributionofbenefitsseems<br>tobe themostsuitableforsmallcountries.|

Source: Glaessner and Valdes-Prieto (1998).

Whenever the small size of a country does not justify the sunk costs that characterizes some of the pensions services it might be necessary to allow foreign firms to centralize these services in a foreign location, where production costs could be lower and provided communication services are efficient and data privacy can be ensured. Several large