Bureaucratic Discretion, Business Investment, and Uncertainty

Abstract

What determines whether policy environments attract or deter investment? Scholars worried about the vulnerability of market-supporting institutions to political manipulation have identified delegation to independent actors as way to increase policy environments' predictability. Extant arguments, however, risk overgeneralizing from the experience of developed democracies. I argue that investors' response to bureaucratic discretion-agents' leeway to make decisions and act independently of political bodies-depends upon the broader institutional context. Where robust political institutions are lacking, bureaucratic discretion acts as a source of unpredictability that deters investors; conversely, political institutions that share the cost of monitoring help to mitigate uncertainty about how bureaucrats will use discretion in applying regulatory rules. Using survey data from over 600 enterprises in Russia, I find that perceptions of bureaucratic discretion are negatively associated with firm managers' willingness to invest; this effect is particularly pronounced in regions where the institutional environment discourages political competition.

Making, Buying, and Choosing Partners: Training Strategies Among Russian Firms

“…Последние могут воспользоваться информационной асимметрией и трудностями осуществления контроля для того, чтобы минимизировать усилия и сорвать реализацию программ, которые им не нравятся (McNollGast, 1987;Weingast and Moran, 1983). Чем сложнее программа и чем более усилий требуется для её реализации, тем менее вероятно, что чиновники более низкого уровня будут добросовестно её внедрять и реализовывать (McCubbins and Schwartz, 1984), что влечёт за собой важные последствия негативного характера для инвестиционного климата в целом (Beazer, 2012). Что касается совместных образовательных программ, можно сказать, что механизмы взаимодействия между компаниями и государственными организациями часто требуют от последних внесения радикальных изменений в учебные планы, повышения квалификации имеющихся преподавателей или найма новых, а также отслеживания успеваемости учащихся, что является крайне затратным (Remington and Marques, 2017).…”

Political Connections and Non-Traditional Investment: Evidence from Public-Private Partnerships in Vocational Education

“…More problematic for firms pursuing cooperative forms of skill development with the state, such as PPP, are dangers stemming from having to work hand-in-hand with school administrators and other lower level state officials. Such officials often possess information asymmetries which allow them to shirk on their responsibilities or to carve out discretion in enforcing policy (McNollGast, 1987;Weingast and Moran, 1983), which heightens uncertainty for firms' dealing and negatively influences expected investment returns (Beazer, 2012). Absent oversight and pressure from above to force such officials to exert effort, they are unlikely to faithfully implement complex policies (Gehlbach, 2008;Huber and Shipan, 2002;McCubbins and Schwartz, 1984).…”

Training Strategies and Skill Development Amid Weak Institutions: Evidence from Russia

“…The later can take advantage of information asymmetries and monitoring difficulties in order to minimize effort and subvert enforcement and implementation of programs that they do not like (McNollGast 1987;Weingast and Moran 1983). The more complex the program and the more effort it requires, the less likely lower-level officials are to faithfully implement and enforce it (Huber and Shipan 2002;McCubbins and Schwartz 1984;Gehlbach 2008) with important, and negative, consequences for general investment (Beazer 2012). With respect to cooperative education programs, cooperative arrangements between firms and state-based providers often require the latter to implement sweeping changes to curricula, update the skills of instructors or hire new ones, and track student performance, all of which require costly effort (Remington and Marques 2017).…”