Firms, Public Good Provision and Institutional Uncertainty: Evidence from Russia

Posted: 8 Dec 2012

See all articles by Simo Leppänen

Simo Leppänen

Aalto University, Center for Markets in Transition; Independent

Mikael Linden

University of Eastern Finland

Laura Solanko

Bank of Finland - Institute for Economies in Transition (BOFIT)

Date Written: 2012

Abstract

Enterprises in post-socialist and transition economies often participate in providing infrastructure and social services to the surrounding community which in the Russian legal setting should be local authorities’ responsibility. We propose that this bundling of social and infrastructure goods provision with firm's core operations is a fully rational choice in an uncertain institutional environment. A unique survey data suggest that this manifests itself through more reliable infrastructure, stronger employee attachment to the firm and, most interestingly, through better relations with the authorities. Relationship with authorities is a two-way game where the firm gains from the arrangement but on the other faces sanctions if it decided to depart from it. Firm's participation in the arrangement is clearly enhanced by inherited fixed capital assets from the Soviet era.

Keywords: Uncertainty, Public goods, Institutions, Russia

JEL Classification: H41, P31, D22

Suggested Citation

Leppänen, Simo and Linden, Mikael and Solanko, Laura, Firms, Public Good Provision and Institutional Uncertainty: Evidence from Russia (2012). Economic Systems, Vol. 36, No. 4, 2012, Available at SSRN: https://ssrn.com/abstract=2185970

Simo Leppänen (Contact Author)

Aalto University, Center for Markets in Transition ( email )

Lapuankatu 2
P.O. Box 21230
Helsinki, FI-00100
Finland

Independent ( email )

Mikael Linden

University of Eastern Finland ( email )

PO Box 111
Joensuu, 80100
Finland

Laura Solanko

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Helsinki 00101
Finland

HOME PAGE: http://www.bof.fi/en/suomen_pankki/organisaatio/asiantuntijoita/solanko_laura/

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