Economic Transition and the Rise of Alternative Institutions: Political Connections in Putin's Russia

40 Pages Posted: 17 Sep 2018

See all articles by Natalia Lamberova

Natalia Lamberova

University of California, Los Angeles

Konstantin Sonin

University of Chicago - Harris School of Public Policy; Higher School of Economics; Centre for Economic Policy Research (CEPR)

Date Written: September 2018

Abstract

The economic transition from socialism in Russia has not resulted in the emergence of impersonal, rule-based institutions. Instead, the natural demand for institutions that protect property rights has led to the emergence of alternative, inefficient institutions such as that of cronyism - the practice of appointing personal acquaintances of the political leader to key positions. A political leader not constrained by institutions appoints cronies, as competent subordinates are more prone to switching allegiance to a potential challenger. As competence makes a bigger difference in a rule-based environment, such a leader has no interest in any institutional development. In a simple empirical exercise, using a data set that covers the richest Russians, we find a positive and significant effect of direct connections to the personal circle of President Putin on the wealth of businessmen. The magnitude of the effect varies at different levels of rents available for redistribution and "network centrality of a businessman": it is higher during the years of high oil prices, but is attenuated by the prominence of the businessman in the network.

Keywords: alternative institutions, network analysis, Political Connections

JEL Classification: C45, P26

Suggested Citation

Lamberova, Natalia and Sonin, Konstantin, Economic Transition and the Rise of Alternative Institutions: Political Connections in Putin's Russia (September 2018). CEPR Discussion Paper No. DP13177, Available at SSRN: https://ssrn.com/abstract=3250793

Natalia Lamberova (Contact Author)

University of California, Los Angeles ( email )

Los Angeles, CA 20094
United States

Konstantin Sonin

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Higher School of Economics ( email )

20 Myasnitskaya street
Moscow, 119017
Russia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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