Uncertainty as a Factor in Investment Decisions : The Case of the Russian Federation's Regions
This paper argues that although the bulk of the literature tends to focus on regulatory uncertainty stemming from formal practices, uncertainty that comes from unpredictable informal practices surrounding regulation is an underexplored additional f...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/08/26739542/uncertainty-factor-investment-decisions-case-russian-federations-regions http://hdl.handle.net/10986/25051 |
| Summary: | This paper argues that although the bulk
of the literature tends to focus on regulatory uncertainty
stemming from formal practices, uncertainty that comes from
unpredictable informal practices surrounding regulation is
an underexplored additional form of regulatory uncertainty.
The paper uses the results of empirical analysis of several
unique firm-level data sets to argue that firms in Russian
institutional environments adapt to informal practices of
business-government interactions, so long as these practices
are predictable. The paper draws a distinction between
differences in levels of relatively well-ordered (and often
centralized) and therefore predictable corruption—a
predictable component of the cost of doing business—and
variation in experiences with corruption, which often
results from decentralized, unconstrained
("administrative") corruption and the rent-seeking
incentives of lower level officials. It argues that a
significant obstacle to investment decisions at the regional
level is not so much formal or informal rules per se, but
lack of predictability of their application. It also
examines in-country inconsistency in property rights
enforcement as another source of underexplored regulatory
uncertainty tied to informal practice. Unlike administrative
corruption, inconsistent property rights enforcement is a
fundamental, existential threat to businesses. To test this
hypothesis, the paper draws on a measure that captures
private "raiders'" attacks on firms—hostile,
often violent takeovers of firms by outsiders aided and
often abetted by law enforcement agencies. The paper argues
that the greater is the number of raider attacks for a given
region, the greater is the uncertainty and the less likely
is investment. |
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