Institutions and the Vicious Circle of Distrust in the Russian Household Deposit Market, 1992-1999.

45 Pages Posted: 19 Aug 2004

See all articles by Andrew Spicer

Andrew Spicer

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

William Pyle

Middlebury College - Department of Economics

Date Written: February 2003

Abstract

In our analysis of the Russian household deposit market during the 1990s, we show how the initial conditions of market emergence contributed to a vicious circle in which private commercial banks progressively lost the trust of potential depositors. The roots of this destructive dynamic lay in the initial conditions of market emergence. Initial experiences of fraud and financial loss led Russian households to distrust that commercial banks would honor their contractual obligations. As distrust grew and became more ingrained, the competitive conditions in the deposit market changed in a way that further increased the gains to opportunism and decreased the returns to trust production. In a self-reinforcing process, fraud begat more fraud.

Suggested Citation

Spicer, Andrew and Pyle, William, Institutions and the Vicious Circle of Distrust in the Russian Household Deposit Market, 1992-1999. (February 2003). Available at SSRN: https://ssrn.com/abstract=577764 or http://dx.doi.org/10.2139/ssrn.577764

Andrew Spicer (Contact Author)

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management ( email )

Riverside, CA 92521
United States

William Pyle

Middlebury College - Department of Economics ( email )

Munroe Hall
Middlebury, VT 05753
United States
(802) 443-3240 (Phone)

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