Life insurer performance under the bailout of distressed asset purchases

ABSTRACT

The paper develops a structure-break contingent claim model to examine how government bailout affects a life insurer’s performance (policyholder protection and insurer survival). The distressed assets purchased by the government enhance the optimal insurer interest margin, and policyholder protection. Bailout as such helps the life insurer, implying a higher likelihood of survival in particular when a financial crisis deteriorates seriously, thereby contributing to the stability of the insurance system. In addition, we suggest that low participation of the profit-sharing policy increases insurer survival. This strategic participation effect becomes more significant when the economic state of structural break volatility is increased, and thus, enhancing insurer survival and solving financial problems.     

Index Volume XI – 1977

Abstract:

This essay adapts Commons’s model of the legal foundations of capitalism to the peculiar circumstances of the neoliberal era. So doing provides a lens for seeing the steady erosion of state capacity to protect the commonwealth, even in nations with hegemonic currency. Our focus here is on the links between the “triple crisis” of the 1980s and the subprime and foreclosure crisis of the 2000s. We show how Brady bonds, after being used to resolve the Latin American debt crisis in the 1980s, provided a governing contractual context for subprime lending, and as such constrained the capacity of the U.S. government to respond to a crisis that preyed on the vulnerable, undercut community life, and contracted the commonwealth.     

Disintegration of Russian Grain Markets in Transition: Political and Economic Dimensions

Between 1990 and 1996 the share of interregionally traded grain in the total amount of grain domestically available in the Russian Federation was reduced significantly. Much evidence indicates that the decline of the domestic grain trade has mainly been the result of strict control by regional authorities following their own agricultural market policy, of a lack of market institutions, and of uncertain macroeconomic conditions, thus creating a favourable environment only for increasing barter trade. In addition to the weakness of the federal government, which has not been able to enforce the basic rules necessary for the development of a functioning domestic market, the outcome of privatisation of state grain marketing organisations has accelerated the emergence of fragmented Russian grain markets. Regional authorities have managed to gain control over the newly privatised enterprises. This has facilitated the creation of regional monopolies and the isolation of local markets. In addition, increasing transaction costs in interregional trade due to the rise of barter trade have led to a contraction of the trade volume. After the financial crisis of 1998 these disintegrative tendencies have been strengthened further. In this difficult situation only close cooperation between reform-oriented regions can help to create conditions which facilitate the emergence of a domestic grain market in the long run.     

Foreign Banks and Political Sovereignty: The Case of Argentina

Abstract

This paper analyzes a seldom discussed aspect of Argentina's banking crisis of 2001–2002: the conflict that arose between foreign banks and the national government over the economic policies applied in response to the banking crisis. In particular, the paper will examine the foreign banks' strategy to dollarize the economy and to impede the national government's strategy of pesofication.     

Asymmetric Information and the Russian Individual Savings Market

The article considers the influence of informational imperfections on the performance of the Russian financial market. The focus is on the individual savings market, which exhibits inefficiencies, including those associated with the market power of a dominant agent—Sberbank. Reinforcement of Sberbank's dominance on the market in the period 1994‐98 (before the August default combined with financial crisis) is explained as a consequence of asymmetric information about the probability of bankruptcy of a new bank. Under asymmetric information a new private bank has to provide specific quality signals in order to attract depositors. Two major lines of inquiry are the criteria for choosing forms of savings, including that of a bank in which to deposit money, by Russian citizens, and banks' advertising strategies to confirm the factual risk of default. Within the conceptual framework of a game with separating equilibrium, we analyse the behaviour of the agents on both supply and demand sides in the market. We find that there is evidence of using advertising as a tool of quality signalling at a certain phase of the Russian individual savings market's development.     

Defence Industry Transformation in Russia: Evidence from a Longitudinal Survey

The article is devoted to the new phenomena in the market transformation of the Russian defence-industrial complex. Based on the data generated by the repeated survey of the CEOs (general directors) of defence enterprises in 1995‐99, it examines economic performance of enterprises, their conflicts with the government and efforts at internal restructuring brought about by reductions of Russia's defence spending, mass privatisation and opening up of the domestic market. We found that despite the dramatic reduction in defence orders, inconsistent government policies and extremely unfavourable macroeconomic environment, the Russian defence industry has made significant progress in its adjustment to the market. Even before the devaluation of the ruble in the autumn of 1998 economic performance of defence enterprises had been gradually improving; it entered a virtual boom since then. Contrary to widely held views, the painful experience of the 1990s has not made the top managers of the defence industry more hostile to reforms: at the end of the decade they were generally more supportive of the market than in 1995.     

Path Dependence in Russian Policy Making: Constraints on Putin's Economic Choice

A decade after the introduction of economic transition in Eastern Europe it was starting to become clear that initial beliefs in one-size-fits-all reforms had been unfounded. While some countries had made the grade, others- notably so Russia- had failed to live up to expectations. This article explores the Russian roots of that failure, arguing that the Russian reformers failed to take into account a deeply rooted Russian path dependence. By focusing narrowly on changes in the formal rules of the game, they neglected pressing needs for broader institutional change, including a credible commitment by the Russian government to impartially enforcing a rules-based system. It is argued that the legacy left for Vladimir Putin in important respects is even more dire than that left by Gorbachev for the El'tsin team.     

Implications of the Russian Crisis

The financial crisis of August 1998 caused grave consequences for Russia. Although the mechanism of financial crises in emerging market economies has been thoroughly studied, the role of transition specificity is still underestimated. In the West, there is a widely accepted opinion that fiscal problems were the main driving force behind the crisis. The article contests this view and reveals a number of fundamental reasons that have brought a decade of market romanticism to a bitter end. In fact, the crisis disclosed serious misalignments in the strategy of reforms. Premature liberalisation and a far-fetched reliance on monetarist tools coupled with a lack of institutional, microeconomic and legal transformation hampered the development of market forces, provoked glaring macroeconomic discrepancies and, finally, led to a dramatic decline in production. Present Russian economic policy is aimed at reconciling market reforms with the Soviet economic heritage and the particular transition needs of the country.     

Overall effects of financial liberalization: financial crisis versus economic growth

ABSTRACT

The contribution of this work consists firstly in decomposing the effect of financial liberalization into a global direct positive effect on growth and an indirect negative effect via financial fragility and crisis. We show that the aggregate positive effect of financial liberalization outweighs the negative partial or temporary effect. Secondly, contrary to previous works, we distinguish many types of financial reforms. We found that equity market liberalization is the most important component in reducing economical costs associated with financial crisis. Thus, equity market liberalization is the most important favoring growth. Interest rate liberalization enhances significantly the probability of crisis leading to a short-run indirect effect more important than other financial reforms. Thirdly, we improved our work by addressing model uncertainty using Bayesian Model Averaging techniques to choose appropriate indicators for model crisis specification.     

Innovations and Legacies in Russian Human Resource Management Practices: Surveys of 700 Chief Executive Officers

In 1998 we administered a survey to 740 Russian chief executive officers (CEOs), which enabled us to raise the question of the current human resource management (HRM) practices in Russian industrial companies. In October-December 2000 we administered another survey among 735 Russian CEOs. This time we observed a major drive towards some modern instruments of HRM policies. However, an additional survey, devoted to the source of innovations in HRM, revealed that most HRM innovations are implemented on a trial and error basis, without reference to international practices.     

The social budget policy process in Russia at a time of crisis

ABSTRACT

This article examines the process of Russian social budget formation during 2015–2016, a period marked by a significant reduction in state revenues due to changes in Russia’s economic and international environment. Participants in the budget process included the president, prime minister, the financial–economic and social blocs of government, and experts outside the government. An important concern associated with the social sphere was maintaining political popularity. Budget formation in this area occurred via bureaucratic bargaining, with the president intervening only on the most salient issues. Examples of policy elaboration including indexation of major benefits and the freezing of pension contributions are considered.     

The role of the executive in Russian budget formation

Abstract

The article provides an examination of the role of Russia’s dual (semi-presidential) executive in the budget process. The Constitution gives the president a strategic role, leaving operational budget formation to the ‘government’, chaired by the prime minister, whereas the common view of Russian policy making is of the president’s ‘hands-on management’. The article looks at how the president engages in the budget process, and whether, on the one hand, excessive ‘hands-on’ presidential involvement leads to a disrupted policy process, or, on the other hand, it breaks down the inter-agency deadlocks that are common in Russian policy making. The conclusion is that a reasonable balance is found between the two.     

Nationalizations,bailouts and efficiency

ABSTRACT

We develop a theoretical model in which there are public and private firms and a government. When firms become insolvent, the government can intervene with bailouts or nationalizations. The government only intervenes when the bankruptcy of a firm entails social costs. In this setting, we analyze how government interventions affect allocative and productive efficiency. Nationalizations of private firms after unprofitable investments lead to increased allocative efficiency despite private ownership. The effort level chosen by the managers and employees working for a firm is also affected by the possibility of government interventions, reducing the productive efficiency advantage of private firms.     

Determinants of Enterprise Restructuring in Transition: Description of a Survey in Russian Industry

The survey described in this article collects data on enterprise restructuring, ownership, competition, budget constraints and, particularly, institutions in Russian industry, covering the period between the start of 1992 and September 1999. On their own, the survey answers show a devastating restructuring crisis, massive privatisation, rather weak competition, unexpectedly hard budget constraints, an overwhelmingly negative and relatively positive assessment of formal and informal institutions respectively, and largely the same ruling networks as before the start of market reforms. Ironically, tentative results based on this survey indicate that important determinants of enterprise restructuring in Russian industry are exactly those on which least reform has been accomplished: stronger competition and better institutions go with more restructuring, while privatisation and harder budget constraints do not. The substitution, to some extent, of informal for formal institutions may have prevented even worse restructuring figures, but better formal institutions in general would have led to further improvements.     

The 2014–15 Financial Crisis in Russia and the Foundations of Weak Monetary Power Autonomy in the International Political Economy

ABSTRACT

This article contributes to international political economy debates about the monetary power autonomy (MPA) of emerging market and developing countries (EMDs). The 2014–15 Russian financial crisis is used as a case study to explore why an accumulation of large international reserves does not provide protection against currency crises and macroeconomic adjustments in EMDs. The analysis centres on the interplay between two dimensions of MPA: the Power to Delay and the Power to Deflect adjustment costs. Two structural factors condition Russia’s low MPA. First, the country’s subordinated integration in global financial markets increases its financial vulnerability. The composition of external assets and liabilities, combined with cross-border capital flows, restrict the use of international reserves to delay currency crises. Second, the choice of a particular macroeconomic policy regime embraced the financialisation of the – mainly state-owned – Russian banking sector, thus making it difficult to transform liquidity inflows into credits for enterprises. Russia’s main comparative advantage, hydrocarbon export revenues, is not exploited. The type of economy created due to the post-Communist transition means that provided ‘excessive’ liquidity remains in the financial system and is channelled into currency arbitrage. This factor increases exchange rate vulnerability and undermines Russia’s MPA.     

Doing Away with the Sovereign: Neoliberalism and the Promotion of Market Discipline in European Economic Governance

ABSTRACT

This article proposes a critical reading of market discipline and its limitations as a mechanism in European economic governance. Consistent with neoliberal beliefs about market-based governance, the Economic and Monetary Union (EMU) is premised on the functioning of the government bond market as a fiscal-policy discipliner. However, the operation of market discipline requires that neither governments nor their private creditors can rely on an authority to bail them out. It, therefore, precludes the kinds of intervention by Eurozone’s supranational institutions witnessed during the euro crisis. In the post-crisis context, efforts to strengthen market discipline continue to be frustrated by the growing reliance of financial institutions on government bond markets as well as the European Central Bank’s (ECB) active participation in those markets. Having undermined the credibility of the market as an autonomous and apolitical mechanism of discipline, European economic governance struggles to come to terms with the rise of a supranational ‘economic sovereign’ in the Eurozone.     

Economic growth and balance-of-payments constraint in Vietnam

Abstract

Our paper examines the long-run relation between economic growth and current account equilibrium in Vietnam, using a multicountry balance-of-payments-constrained growth model. We find that for the whole sample (1985–2010) Vietnam grew less than the rate predicted by the model. We also find that the balance-of-payments-constrained growth rate shifted after the 1997 Asian crisis. Since the relative price effect is neutral, the volume effects dominate in setting the balance-of-payments constraint. On the one hand, owing to the high income elasticities of exports, growth in advanced countries has a strong multiplier effect on the Vietnamese economy. On the other hand, this effect is hindered by a strong “appetite” for imports coming from Asia. Finally, we assess the impact of the current crisis on Vietnam’s growth for the period 2011 to 2017.     

Oil crisis,energy-saving technological change and the stock market crash of 1973–74

The market value of U.S. corporations was nearly halved during the oil crisis of 1973–74. In this paper, we investigate the hypothesis that the sharp rise in energy costs during this period resulted in the obsolescence of firms' existing capital and reduced their market value. To quantify this obsolescence channel of the energy crisis, we simulate a calibrated dynamic general equilibrium model, where firms adopt energy-saving technologies along with the rise in energy prices, and the value of their installed capital falls due to investment irreversibility. We find that this channel can account for a third of the decline in Tobin's q observed in the data. Separately, we consider the role of investment subsidies extended by the government during this period to expedite the adoption of energy-saving technologies. This extension of the model can account for more than half of the decline in q. We also find empirical support for the capital obsolescence channel in cross-sectional regressions, where we show that the sectoral variation in the decline of energy use following the crisis is significant in explaining the sectoral variation in the drop of market values.     

俄罗斯人口与移民状况

20世纪末21世纪初,俄罗斯爆发了第四次人口危机,这次人口危机发生在和平年代,人口出生率小于人口死亡率,俄罗斯每年减少近100万人口。由于＂缺人＂,许多村庄荒芜,大量工作无人干,西伯利亚和远东的开发也是纸上谈兵。俄罗斯政府若再不考虑从国外移民,国家将面临＂无人为继＂的尴尬局面。从＂外来移民计划＂、＂优秀人才向外移民严重＂、＂外国劳工人数下降＂和＂中国威胁论＂四个方面论述了俄罗斯人口与移民状况,说明必须增加外来高素质移民来抵消人口危机给俄罗斯的经济社会发展带来的负面影响。     

Cost-effectiveness of distributing naloxone to heroin users for lay overdose reversal in Russian cities

Abstract

Objective:

To evaluate the cost-effectiveness of distributing naloxone to illicit opioid users for lay overdose reversal in Russian cities.

Method:

This study adapted an integrated Markov and decision analytic model to Russian cities. The model took a lifetime, societal perspective, relied on published literature, and was calibrated to epidemiologic findings.

Results:

For each 20% of heroin users reached with naloxone distribution, the model predicted a 13.4% reduction in overdose deaths in the first 5 years and 7.6% over a lifetime; on probabilistic analysis, one death would be prevented for every 89 naloxone kits distributed (95% CI?=?32–260). Naloxone distribution was cost-effective in all deterministic and probabilistic sensitivity analyses and cost-saving if resulting in a reduction in overdose events. Naloxone distribution increased costs by US$13 (95% CI?=?US$3–US$32) and QALYs by 0.137 (95% CI?=?0.022–0.389) for an incremental cost of US$94 per QALY gained (95% CI?=?US$40–US$325). In a worst-case scenario where overdose was rarely witnessed and naloxone was rarely used, minimally effective, and expensive, the incremental cost was US$1987 per QALY gained. If national expenditures on drug-related HIV, tuberculosis, and criminal justice were applied to heroin users, the incremental cost was US$928 per QALY gained.

Conclusions:

Naloxone distribution to heroin users for lay overdose reversal is highly likely to reduce overdose deaths in target communities and is robustly cost-effective, even within the constraints of this conservative model.