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Explaining institutional development: market attitudes, regulation and agent behavioral strategies in different markets

Priority areas of development: economics
2017
The project has been carried out as part of the HSE Program of Fundamental Studies.

The aim of  the project is to assess the influence of institutional and socio-economic factors on behaviour of economic agents in the market for bank services and in the sphere of public procurement, as well as on social mobility formation of market values .

Methodology

Most of the project’s goals are mainly empirical, so they are achieved by the means and methods of econometric analysis. In addition, methods of social network analysis and experimental economics are used.

Empirical basis of research

  • RLMS (Russian Longitudinal Monitoring Survey) data;
  • IAS «Banks and Finance» (Mobile);
  • Rosstat data;
  • Bank of  Russia data;
  • EBRD «Life in Transition Survey (LITS) II» data;
  • Glasnost’ Defense Foundation data;
  • World Balk «Bank regulation and supervision survey» data;
  • World Values Survey data;
  • European Values Study project’s data;.
  • VK.com data;
  • Data of MSU and SPbSU archieves;
  • Data of the State Public Historical Library of Russia’s documents fund;
  • Data of the Russian State Library’s documents fund;
  • Data of the HSE Monitoring the Quality of Enrollment in Russian Universities;
  • The data on the WW II prisoners;
  • Open access data from public procurement and public procurers website.

Results

First of all, in the project we show that biological components of the human capital are important and statistically significant for economic behaviour of individuals. We carried out the analysis of interdependence of prenatal testosterone (measured by 2D:4D) and academic success of individuals. It was shown that for males the 2D:4D is positively correlated with academic success. On the other hand, we found a negative correlation of the 2D:4D and income of females. For males such a relationship is notably absent.

There is a special emphasis on econometric analysis and explanation of a mechanism of higher education’s influence on market values of individuals. In connection to this, we perform comparative analysis of pro-market values in the former USSR countries and in developed economies of the world. We show that education has a positive influence on formation of pro-market values of individuals. This result demonstrates high scale of resistance on the sample of 32 countries (both developed and developing economies). It is shown that the liberal effect of education is also retained through the number of indicators, among which the noteworthy ones are: attitude to trade and price regulation, attitude to a scale of governmental sector of economy, attitude to migration.

Significant attention was paid to statistical analysis of Russian elite’s mobility for the period from the times of Czarist Russia to modernity. The calculated coefficients of representativity speak of presence of upward mobility in comparison to low class. In connection to this, there was established a tendency of rising success in academic, political and military sphere of individuals with commonly spread surnames.

Within the framework of a study of strategies of agents in the banking market, first of all, we studied a question of whether bank panics during crises can be prevented if mass media, pressured by the government, does not inform the people about the unstable economic situation. Such a measure, being temporary and being used only in situations of crisis, may stop abrupt decrease in deposit volumes that may lead to banking crisis and worsen the consequences of the economic crisis as a whole. We used the data on 79 regions in Russia for the time period from 2001 to 2010. Results show that during the crisis of 2008-2009, in regions where mass media freedom was controlled most, there was observed a significantly less serious cut in individual bank deposits growth rate. We suggest that this effect may differ depending on an ability of depositors to interpret the information delivered by the mass media and also on risks of the banks of a particular region. Our results testify that maximal decrease in a deposits growth rates in crisis was observed in regions, where depositors are the most financially literate, banks demonstrated a high level of credit risk, and the mass media freedom is limited the least.

Secondly, using the cross-country databases LITS II, WB Bank Regulation and Supervision Survey, WB Global Financial Indicators, we studied the influence of regulation of banking sector aimed at the bank competition, on the size of the market for informal loans. We show that competition significantly influences the size of this market, while the sign of the corresponding effect depends on the type of competition – by price, concentration, by efficiency – interests a researcher or a regulator. We show, that competition itself is not a key factor influencing the scale of informal market, but the following regulation measures influencing competition are: tightening requirements for capital adequacy, limitation of activity diversification possibilities, stimulation of the growth of a state or foreign participation in a banking sector. Variation in participation of borrowers in the market of informal loans is significantly predetermined by the differences in a regulative component of the competition.

Using the data retrieved from the experiment series, we also studied how the level of depositors’ knowledge influences the probability of bank runs. We carried out a series of experiments with students from Moscow and Saint Petersburg modelling the deposit market with liquidity shocks, vulnerable macroeconomic conditions, and investment technologies with risk. Our results show, that students having higher grades (according to publicly available ratings), choose a strategy of early withdrawal less often. Thus, financial literacy, even when measured in this very simple way, may serve as a solution to the problem of coordination, and, subsequently, a problem of bank panics in the deposit market.

In terms of the analysis of the sphere of public procurement, we considered the questions of discretionary power of a procurer, the mechanisms of regulation of subcontracting, the choice of a procedure and the establishment of reserve prices. We considered the regulation of subcontracting through the theory of economic mechanisms design. We provide an overview of studies related to entering the market within conditions of subcontracting, design of auctions with an opportunity of subcontracting, and empiric studies of auctions with subcontracting. We also considered several options of discretionary power used by procurers: through the specification of contract conditions and through the choice of a procedure. Using the data on public procurement in Nizhny Novgorod region within the period from 2008 to 2013, we showed that the requirement to place petrol stations in different districts of the city/region limits the appeal of the procurement for potential sellers. Though limitations are often regarded as instruments of favoritism, we showed that usage of them may be determined by the nature of the activity of procurers, and it does not always lead to high prices. We showed that the choice of procedures with higher discretionary power (tenders and auctions with limited participation) leads to the decrease in competition, domination of local companies, and increase in prices. We also studied the rules of reserve prices formation that the procurers followed while buying fuel at petrol stations. It was shown that reserve prices and final contract prices increase if price quotations are initially requested. It happens, because companies that plan to participate in procurement are interested in high reserve prices, and low competition in the market does not let auctions offset this effect.

Stage of implementation, recommendations for implementation, or results of implementation of the project’s results

The results of the empirical analysis in the sphere of market values may be used to form the priorities of educational policy. The liberal effect of education may create conditions for socialisation of schoolchildren, college and university students. More to this, the liberal effect creates conditions for the development of the platform for introducing entrepreneurship to students. Another important factor of liberalisation is continuous economic education of citizens. Such initiatives create premises for better adaptation of citizens to market shocks, and promote rational behaviour.

The results of the public procurement analysis received within the project this year may be used for the analysis of those procurer actions that lead to higher prices.

The results received in terms of the analysis of banking sector may be used for the optimisation of regulation initiatives in this sphere. They will help to consider the indirect influence of regulatory measures for stimulating competition in banking markets on the development of the non-banking loan market, which is currently operating in Russia under the watchful eye of the regulatory body. The results also speak in favour of the financial literacy programmes development, and our groundings appeal more to the effectiveness of additional knowledge in situations where there is a threat of bank panics envelopment rather than to the optimisation of investment choice.  We also find proof that information control in the mass media during crises is an efficient method of protecting banks from massive withdrawals of funds by depositors, which is damaging for the whole banking system. It is particularly important because of the fact that in such periods, bank panics and massive withdrawals may be based on the inefficient bank runs, which leads to financial problems for stable banks.

 

Publications:


John V.C. Nye, Maksym Bryukhanov, Sergiy Polyachenko. 2D:4D and lifetime educational outcomes: Evidence from the Russian RLMS survey // Personality and Individual Differences. 2017. Vol. 112, 1 July 2017. P. 62-66. doi
Nye J. V., Polyachenko S. S., Bruhanov M. Descriptive statistics and regressions of 2D:4D and educational attainment based on RLMS data // Data in Brief. 2017. Vol. Volume 12. P. 552-583.
Брюханов М. В., Поляченко С. С. Анализ изменений доходов и расходов российских домохозяйств // Вестник Российского экономического университета им. Г.В. Плеханова. 2017. Т. 3. С. 35-43.
Семенова М. В., Козлова А. А. Влияет ли название на рыночную дисциплину: пример иностранных банков в России // Экономический журнал Высшей школы экономики. 2017. Т. 21. № 1. С. 66-88.
Semenova M., Andrievskaya I. K. Does biological endowment matter for demand for financial services? Evidence from 2D:4D ratio in the Russian household survey // Personality and Individual Differences. 2017. Vol. 104. P. 155-165. doi
Nye J. V., Bruhanov M., Kochergina E. V., Orel E., Polyachenko S. S., Yudkevich M. M. The effects of prenatal testosterone on wages: Evidence from Russia // Economics and Human Biology. 2017. Vol. 24. P. 43-60. doi
Bucciol A., Adani R. C., Valbonesi P. Buyers' Ability in Public Procurement: A Structural Analysis of Italian Medical Devices / Department of Economics of the University of Verona. Series "Working Paper". 2017. No. 16.
Susin I. Auctions with resale: a survey // HSE Economic Journal. 2017. Vol. 21. No. 2. P. 333-350.
Corazzini L., Galavotti S., Sausgruber R., Valbonesi P. Allotment in First-Price Auctions: An Experimental Investigation // Experimental Economics. 2017. Vol. 20. No. 1. P. 70-99. doi
Maksym Bryukhanov, Igor Fedotenkov. Religiosity and Life Satisfaction in Russia: Evidence from the Russian Data / National Research University Higher School of Economics. Series WP BRP 180 "Economics/EC". 2017.
Nye J. V. Positional goods and the challenge of Chinese regional inequality // Economic and Political Studies. 2018. Vol. 6. No. 1
Schoors K., Semenova M., Зубанов А. Depositor Discipline in Russian Regions: Flight to Familiarity or Trust in Local Authorities? / Bank of Finland Institute for Economies in Transition. Series DP "BOFIT Discussion Papers". 2017. No. 1/2017.