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Institutions And The Vicious Circle Of Distrust In The Russian Household Deposit Market, 1992-1999

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  • Andrew Spicer

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  • William Pyle
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    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.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp588.pdf
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    Bibliographic Info

    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2003-588.

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    Length: 45 pages
    Date of creation: 01 Feb 2003
    Date of revision:
    Handle: RePEc:wdi:papers:2003-588

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    1. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2000. "The Role of Social Capital in Financial Development," NBER Working Papers 7563, National Bureau of Economic Research, Inc.
    2. Abarbanell, Jeffery S. & Meyendorff, Anna, 1997. "Bank Privatization in Post-Communist Russia: The Case of Zhilsotsbank," Journal of Comparative Economics, Elsevier, vol. 25(1), pages 62-96, August.
    3. Andrew M. Warner, 1998. "The emerging Russian banking system," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(2), pages 333-347, November.
    4. Martin Raiser & Christian Haerpfer & Thomas Nowotny & Claire Wallace, 2001. "Social capital in transition: a first look at the evidence," Working Papers 61, European Bank for Reconstruction and Development, Office of the Chief Economist.
    5. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
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