Research

	Incentives, Institutions, Property Rights
	Entrepreneurship, Human Capital, Industrial Organization, Growth
	Other

Incentives, Institutions, Property Rights

•  Current working papers
  

"Formal Incomes and Actual Wealth: Evidence from Moscow Income and Car Ownership Databases" (with Sergey Mityakov and Adrey Liscovich). The paper looks into income reporting in the imperfect institutional environment and tries to quantify the magnitude of income going unreported by matching taxable income reports with car purchases data. We are looking both at overall income underreporting and at how it is different between public and private sector, by occupation and by ethnical groups. Will be available on-line soon.

"The Fortunes of Post-Communist Business Elite in Russia: Oligarchic Capitalism and Political Risk". A detailed microeconomic look at Russian business leaders of the 1990s: how they earned their fortunes (wealth) and what fortunes (fate) awaited them after that. I make an attempt at assessing the quantitative impact of various factors, such as pre-reform background, close-knit ties, political connections, ethnicity, influence with the media, more or less open income reporting, and so on. Will be available on-line soon.

• Selected published work
  

"The Rise and Fall of Post-Communist Oligarchs: Quantitative Analysis". Forthcoming in Journal of Law and Economics (April 2009). Russian transition has not been a revolutionary jump from the totalitarian order to an ideal market economy and democracy but an incremental process that has so far resulted in a hybrid system aptly called “oligarchic capitalism”. We study the evolution of the first postcommunist oligarchy through examining the careers of 296 most prominent first-wave postcommunist business tycoons. We find that 43 percent of them consisted of “insider oligarchs” deriving their status from privileged nomenklatura background dating back to the previous regime. The rest were "outsider oligarchs" who did not have such background. Compared to insider oligarchs, the outsider oligarchs were younger, had higher-quality human capital and were disproportionately Jewish. Their first major business success tended to happen in sectors neglected in the planned economy. But the overwhelming majority of them subsequently developed their own special relationship with the government. It appears that instead of changing the rules of the social-economic game, the new entrants were themselves changed by those rules. On-line Appendix (data)  On-line Appendix (anecdotes).

"A Macroeconomic Model of Russian Transition: The Role of Oligarchic Property Rights" (with Roger Myerson), Spreadsheet. Economics of Transition, 15 (1), 2007, pp. 77-107. This paper offers a parsimonious model of the steep decline and subsequent recovery of the Russian economy during its transition to a market economy by the phenomenon of oligarchic property rights and the fact that the "oligarchs" were initially very short on safe assets abroad.

Incentives and Institutions. The Transition to a Market Economy in Russia (with Grigory Yavlinsky). Princeton University Press, Princeton, New Jersey, 2000. This book contains most fruits from my research into early transition to a market economy in Russia in the 1990s. It shows how the Russian economy after the collapse of communism basically continued to follow its own inner logic of development that had started long before 1992 and how this was missed by the architects of Russian reforms. Much of the argument made in the book (such as the need to take account of informal institutions and incentives "at the bottom" when designing reform policies "from the top") have now become almost commonplace, but arguably this was one of the first contributions to bring this point home at the time. Amazingly, copies are still selling (I have just received another royalties check!). The book was reviewed in various professional journals, the Journal of Economic Literature, Economic Journal, Journal of Comparative Economics, American Political Science Review, Foreign Affairs, Milken Institute Review, Internationale Politik, European Legacy, Slavic Review among them.

"Enforcement of Property Rights during the Russian Transition: Problems and Some Approaches to a New Liberal Solution", Journal of Legal Studies, Vol. 28, No. 2, 1999, 515-544. An analysis of failure of public property rights protection and its negative consequences for economic efficiency. Policy proposals contained in this paper were reflected in the Presidential program of my friend Yavlinsky when he ran for office in 2000 (unfortunately, he did not win).

"Democracy and Economic Reform: Theory and Some Evidence from the Russian Case", Contemporary Economic Policy, Vol. 16, No. 2, 1998, 227-240.

"Producer's Behavior in Transition Economy - Theoretical and Empirical Analysis with Special Application to the Russian Economy", Economic Systems, Vol. 21, No. 3, 1997, 265-295.

"Corruption and Schumpeterian Growth in Different Economic Environments", Contemporary Economic Policy, Vol. 14, No. 3, 1996, 14-25.

"The State and the Market in the Planned and Post-Planned Economy - the Case of the Former Soviet Union and Russia", chapter 6 in The State and the Economic Process, edited by C.W.M.Naastepad and S.Storm, Edwar Elgar, 1996, 177-207.

"The Inefficiency of Laissez-Faire in Russia: Hysteresis Effects and the Need for Policy-Led Transformation" (with Grigory Yavlinsky), Journal of Comparative Economics, Vol. 19, 1994, 88-116.

Entrepreneurship, human capital, industrial organization, growth

•  Working papers

"Where Does Entrepreneurship Pay? Returns to Ability in Technology-Oriented vs. Non-Technology Oriented Businesses" (with Atsushi Ohyama), Revised January 2008. Is starting an independent business the last resort for misfits or does it give an opportunity for most talented workers to maximize the return to their human capital?  We propose a theoretical framework that encompasses both these views, and we tackle it as an empirical question by employing the NSF data on science and engineering workforce.  Highly talented individuals sort themselves into entrepreneurship in occupations that are technology-oriented, while misfits get pushed into running independent businesses in occupations that are non-technology oriented.  The theory also predicts that in technology-oriented occupations, less experienced entrants into entrepreneurship would be those with exceptionally high ability.  We then demonstrate empirically that entrepreneurship generates considerable conditional mean and median pecuniary returns as compared to paid work in technology-oriented occupations and we find evidence of positive self-selection among entrepreneurs in these occupations, especially among less experienced workers.  In contrast, among scientists and engineers whose business ventures are non-technology oriented, the entrepreneurial earnings differential is negative, in line with findings in the previous literature, and there is also evidence of negative selection. On-line Appendix
This paper is part of the research project "Entrepreneurial Activity and Economic Change" funded by the Kauffman Foundation (joint also with Michael Gort and Seoung-Hoon Lee).

"The Role of Openness in Industry Dynamics: A Model of Innovation and Technology Diffusion With Different Market Sizes" (with Salavat Gabdrakhmanov, Atsushi Ohyama and David C. Rose), Revised November 2007. We propose a new theoretical model linking the degree of openness of an economy to innovation and technology diffusion.  The degree of openness to trade affects the size of the market faced by the domestic industry and therefore the optimal decision of domestic innovators about how much to invest in innovation and whether to prevent industry-wide knowledge spillovers.  We show that the optimal investment path involves allowing for spillovers while the competitors’ output is small relative to the market, so that their imitation does not reduce the price and thus profits by much.  As the industry grows and price-destruction effects become more pronounced, it becomes profitable to switch to protecting secrecy.  Using this framework, we demonstrate that if a country tries to adopt protectionist measures, technology diffusion typically stops before the industry can compete at world prices, so that such a policy is likely to be self-defeating.  On the other hand, an industry may initially grow more slowly under free trade, but will be able to sustain the diffusion of innovations at least until it becomes globally competitive.

"Noisy Selection Model and the Evolution of Within-Firm Salary Earnings and Firm Size Distributions" (with Atsushi Ohyama), April 2007. Striking parallels are observed in the evolution of within-firm salary earning and firm size distributions over time.  At the time of entry, the distribution of the whole sample and that of eventual survivors look similar but the distribution of survivors subsequently shifts to the right.  The left tails thins out and the right tail thickens, and both the mode and the mean increase.  We demonstrate that these empirical findings are consistent with the noisy selection model.

 "Allocation and Misallocation of Human Capital: Some Lessons from Japan and Russia". Buffalo Legal Studies Research Paper Series No. 2005-01.
Presented at a multi-disciplinary workshop "The Mystery of Capital and the Construction of Social Reality", University at Buffalo, September 2004.
Accepted for publication as a chapter in the book The Mystery of Capital and the New Philosophy of Social Reality (Open Court).

• Selected published work

"A Theory of Industry Dynamics With Innovation and Imitation" (with Salavat Gabdrakhmanov and Atsushi Ohyama), Reivew of Economic Dynamics, Vol. 10, No. 4, 2007, 729-760. We show that industries at early stages of the life-cycle will be tend to have not only competitive innovations but also a lot of knowledge spillovers that will lead to fast growth. As this growth contiues, the price-destruction effects from new entry will force innovators to start spending resources on preventing knowledge spillovers, slowing down industry-wide growth and causing a possible shake-out.

"Capital and Growth with Oligarchic Property Rights" (with Roger Myerson), Reivew of Economic Dynamics, Vol. 10, No. 4, 2007, 676-704. Appendix, Spreadsheet.  To analyze effects of imperfect property rights on economic growth, we consider economies where some fraction of capital can be owned only by local oligarchs, whose status is subject to political risk.  Political risk decreases local capital and wages.  Risk-averse oligarchs acquire safe foreign assets for insurance, thus increasing wages in other countries that protect outside investors.  Reforms to decrease political risk or to protect more outsiders' investments can decrease local oligarchs' welfare by increasing wages. Cornell presentation

"Bidder Discounts and Target Premia in Takeovers" (with Boyan Jovanovic). American Economic Review, Vol. 94, No. 1, 2004, 46-56. On news of a takeover, the sum of the stock-market values of the firms involved often falls, and the value of the acquirer almost always does. Does this mean that takeovers do not raise the values of the firms involved? We set up a model in which the equilibrium number of takeovers is constrained efficient. Yet, upon news of a takeover, a target’s price rises, the bidder’s price falls, and, most of the time the joint value of the target and acquirer also falls.

“Entrepreneurial Ability and Market Selection in an Infant Industry: Evidence from the Japanese Cotton Spinning Industry” (with Atsushi Ohyama and Kevin M.Murphy). Review of Economic Dynamics, Vol. 7, No. 2, 2004, 354-381. In this paper we develop a new insight into the process of learning in an infant industry, in a setting where entrepreneurs are differentiated by talent. The learning rate depends on the quality of ideas, not on the scale of the industry, and a competitive open economy regime may furnish a better environment for innovation-led industrial growth even in the presence of industry-wide increasing returns to scale. Competitive market selection of ablest entrepreneurs forms a crucial condition for successful industrialization. The model is tested against the evidence of the industrial revolution in Japan.

"Human Capital" (with Michael Intriligator and Vitaly Shvydko), Chapter 26 in The New Russia. Transition Gone Awry, Ed. By Lawrence R. Klein and Marshall Pomer, Stanford University Press, Stanford, California, 2001, 403-412.

  Other

Invited Contributions to The Encyclopedia of Capitalism, in three volumes, Facts on File, New York (2004). Articles: “Ownership”, “Russia”, “Japan”, “Macroeconomics”, “Monetarism”, “Bank of Japan”, “Marx, Karl”, “Engels F.”

Political Economy: Problems and Ways of Renovation (in Russian) (with Yakov Pevzner), Moscow, "Muisl", 1991.

Monetary Policy in Japan (in Russian), Moscow, "Nauka", 1989.