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

Author

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  • Lamberova, Natalia
  • Sonin, Konstantin

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.

Suggested Citation

  • Lamberova, Natalia & Sonin, Konstantin, 2018. "Economic Transition and the Rise of Alternative Institutions: Political Connections in Putin's Russia," CEPR Discussion Papers 13177, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13177
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    References listed on IDEAS

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    More about this item

    Keywords

    alternative institutions; network analysis; Political Connections;

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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