Western sanctions—Only half the challenge to Russia’s economic union

Tensions over Russia’s recent actions in Ukraine and the Middle East have resulted in wide-ranging Western sanctions. An understanding the destabilizing regional and institutional effects of sanctions is, therefore, fundamental for policymakers on both sides. Data from 2007 to 2015 are used to analyze the effect of funding, bank ownership and credit quality across Russia’s wider Economic Union. Results enable systemic insights into an often opaque region during a period of crises and sanctions. Specifically we find that sanctions result in institutional illiquidity, limited capital market access and a rise in state funding coupled with bank take-overs by governments. Government Institutions exploit their access to state funding to increase market share but the positive effects are limited since there is clear evidence of ongoing poor credit management. An increase in loan loss provisions, lagged abnormal credit losses, suggest that until this second but significant ‘weak management’ effect is addressed, it will be difficult for institutions in the region to overcome the debilitating effects of sanctions.     

The Cognitive and Emotional Components of Behavior Norms in Outdoor Recreation

Behavioral norms consist of two components: a cognitive component of obligation that is the memory repository of social standards, and an emotional component of sanctions that are the feelings and physiological states that result when actual behavior is consistent or not consistent with the obligation. This article analyzes the cognitive and emotional components of norms identified in three studies of behaviors (littering, controlling dogs while cross country skiing, and bikers and skaters warning when passing) in outdoor recreation settings. All three studies provide data on obligations to behave a particular way and internal and informal sanctions for correct or incorrect behavior. Obligations for all the behaviors were highly crystallized and were not statistically different. Internal sanctions were shame and guilt, and informal sanction was embarrassment. The intensity of the norms was determined by summing individuals' responses for shame, guilt, and embarrassment. The power and prevalence of the norms were determined by cross tabulating obligations by intensities. Intensity, power, and prevalence were very high for littering and failing to control your dog while cross country skiing, but were very low for skaters and bikers failing to warn when passing slower users on a multiple use trail. Measuring sanctions is shown to be critical to determining the intensity, power, and prevalence of behavioral norms. Suggestions are given for ways to include sanctions in studies of social and environmental condition norms.     

ECONOMIC SANCTIONS REVISITED: ADDITIONAL INSIGHTS INTO WHY THEY FAIL

Economic sanctions have a poor track record in achieving their objectives. In most cases, they are ineffective in bringing about policy change, cause increased suffering in the sanctioned country and reduce opportunities for business. This paper provides additional insights into why sanctions fail by examining two overlooked factors: power–dependency theory and pressure for political stability.     

Bank profitability in the Eurasian Economic Union: Do funding liquidity and systemic importance matter?

The post-crisis regulatory architecture targets greater banking stability by imposing additional capital and liquidity requirements. Profit persistence, however, remains an important factor for attaining this goal. Using annual data for 2008–2017, this study analyzes the relationship between funding stability, systemic importance, and the profitability of banks in the three founding states of the Eurasian Economic Union (EAEU): Russia, Kazakhstan, and Belarus. The results show a strong degree of stability in net interest margin (NIM) and a lack of persistence in return on assets (ROA). Compliance with the minimum level of the Net Stable Funding Ratio (NSFR) reduces both the funding liquidity risk and the NIM of EAEU banks. Moreover, systemically important banks in the region historically operate at a lower interest spread and less prudent NSFR, which implies a potentially greater adverse effect on their NIM. Bank-specific variables have various impacts depending on the measure of profitability. The results also highlight that greater market concentration protects the NIM and negatively impacts the ROA of EAEU banks. Finally, Western sanctions have a destabilizing effect on the NIM of EAEU banks, but not on systemically important banks.     

The effectiveness of economic sanctions with application to the case of Iraq

In a recent article, San Ling Lam (1990) used a probit estimation technique to re-examine the conclusions of Hufbauer, Schott and Elliott (1985) regarding the effectiveness of economic sanctions in achieving foreign policy goals. While Lam's criticisms of the HSE methodology are valid, the results of the model developed here differ in lending support to the HSE conclusions. In addition, the model can be used to predict the probability of sanctions contributing to a peaceful resolution of the recent Middle East crisis. The predicted probabilities of success in the Iraq case were above average and well above 50 percent.     

Sanctions that signal: An experiment

The introduction of sanctions provides incentives for more pro-social behavior, but may also be a signal that non-cooperation is prevalent. In an experimental minimum-effort coordination game we investigate the effects of the information contained in the choice to sanction. We compare the effect of sanctions that are introduced exogenously by the experimenter to that of sanctions which have been actively chosen by a subject who has superior information about the previous effort of the other players. We find that cooperative subjects perceive actively chosen sanctions as a negative signal which significantly reduces the effect of sanctions.     

How stock markets react to regulatory sanctions? Evidence from France

Our study of how the stock market reacts to sanction announcements by the French financial regulator from 2004 to 2017 finds that the market reacts negatively when a sanction is announced in the press. Cross-sectional regression models show that the penalties are too low to influence market reactions. Our results suggest that after the financial crisis of 2008, a plethora of news on financial wrongdoings has desensitized markets to announcements of sanctions against large companies.     

Sovereign defaults: Information, investment and credit

Why would a sovereign government, immune from bankruptcy procedures and with few assets that could be seized in the event of a default, ever repay foreign creditors? And, correspondingly, why do foreign creditors lend to sovereigns? This paper finds general conditions under which, even in the absence of sanctions, lending to sovereigns can emerge in a single shot game. Furthermore, it shows that positive borrowing can be sustained both in pooling and separating equilibria. In this way, it makes clear that neither sanctions nor reputation considerations, the two classical explanations, are necessary to enforce repayment. Information revelation is the crucial mechanism for these results. The repayment/default decision is interpreted as a signal used by the government to communicate information to domestic and foreign agents about the fundamentals of the economy. Governments repay to affect agents' expectations about them. A default, through its effect on expectations about fundamentals, can generate a decline in foreign and domestic investment and a credit crunch in domestic credit markets. Governments repay to avoid these costs, but may default (in equilibrium) when hit by a negative shock.     

The impact of Russian sanctions on the return of agricultural commodity futures in the EU

During the last conflict between Russia and the Ukraine in 2014, the EU imposed various multilateral sanctions on Russia. As a response, Russia retaliated these measures by banning the agricultural imports from the EU. This study explores whether the retaliation sanctions taken by Russia were already expected by investors or came as a complete surprise. For this purpose, I compare the impact of sanction-related news before and after the official announcement of these sanctions by president Putin in August 2014 on the weekly return of a number of agricultural commodity futures traded at two European commodity exchanges. A newly created indicator on sanction-related news is used that is based on the number of articles that have been published in the major European newspapers containing information about the import ban. The main findings clearly point out that before the imposition of the boycott it was already partly anticipated. The publication of sanction-related news caused a significant drop in the futures return of a number of banned agricultural commodities in the weeks prior to the formal announcement.     

Judicial error and cooperation

Cooperation can be induced by an authority with the power to mete out sanctions for free riders, but law enforcement is prone to error. This paper experimentally analyzes preferences for and consequences of errors in formal sanctions against free riders in a public goods game. With type I errors, even full contributors to the public good may be punished. With type II errors, free riders may go unpunished. We find that judicial error undermines cooperation and that the effects of type I and II errors are symmetric. To investigate their relative (dis-)like for error, we let subjects choose what type of error to prevent. We find that subjects prefer type II over type I errors. However, the strength of preferences for preventing type I errors is fully in line with a motive to maximize income and does not indicate any additional psychological or fairness bias against type I errors.