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Institutions And The Vicious Circle Of Distrust In The Russian Household Deposit Market, 1992-1999

Author

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  • Andrew Spicer
  • William Pyle

Abstract

In our analysis of the Russian household deposit market during the 1990s, we show how the initial conditions of market emergence contributed to a vicious circle in which private commercial banks progressively lost the trust of potential depositors. The roots of this destructive dynamic lay in the initial conditions of market emergence. Initial experiences of fraud and financial loss led Russian households to distrust that commercial banks would honor their contractual obligations. As distrust grew and became more ingrained, the competitive conditions in the deposit market changed in a way that further increased the gains to opportunism and decreased the returns to trust production. In a self-reinforcing process, fraud begat more fraud.

Suggested Citation

  • Andrew Spicer & William Pyle, 2003. "Institutions And The Vicious Circle Of Distrust In The Russian Household Deposit Market, 1992-1999," William Davidson Institute Working Papers Series 2003-588, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2003-588
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    References listed on IDEAS

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    1. Abarbanell, Jeffery S. & Meyendorff, Anna, 1997. "Bank Privatization in Post-Communist Russia: The Case of Zhilsotsbank," Journal of Comparative Economics, Elsevier, vol. 25(1), pages 62-96, August.
    2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June.
    3. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    4. Andrew M. Warner, 1998. "The emerging Russian banking system1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(2), pages 333-347, November.
    5. George Garvy, 1977. "Money, Financial Flows, and Credit in the Soviet Union," NBER Books, National Bureau of Economic Research, Inc, number garv77-1.
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    Cited by:

    1. Nadia Vanteeva, 2012. "The Re-Emerging Role of the State in Contemporary Russia," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 19(1), pages 23-34, September.

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