¹ Property rights are the bundle of rights that include the power to use, transfer, and generate income from assets, including land, labor, and capital. Barzel, Yoram, The EconomicAnalysis ofProperty Rights (New York: Cambridge University Press, 1982), 2Google Scholar. Much economic reasoning suggests that where rightholders assume the full cost and benefits of their actions, they use their assets most efficiently and generate greater welfare gains for all.

² Mikhail Dmitriev, “V zashchitu natsionalizatsii,” Kommersant' January 30, 2006, 1.

³ Joseph Stligitz and Karla Hoff, “The Creation of the Rule and Law and the Legitimacy of Property Rights: The Political and Economic Consequences of a Corrupt Privatization,” NBER Working Papers, no. 11772 (Cambridge, Mass.: NBER, November 2005).

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⁶ Anders Aslund, “Betraying a Revolution,” Washington Post, May 18, 2005, A17. This debate centers on credible commitment. To encourage rightholders to use their assets well, states should commit to protect those rights. Yet because states are sovereign and retain the capacity to change policy at any time, making such a commitment is difficult. The minimization of the credible commitment problem is thought to have led to the growth of credit markets in England, the industrialization of Mexico, and, by one account, to the “rise of the Western world.” See, respectively, North, Douglass and Weingast, Barry, “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth Century England,” Journal of Economic History 59 (December 1989)Google Scholar; Haber, Stephen, Razo, Armando, and Maurer, Noel, The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876–1929 (New York: Cambridge University Press, 2003)CrossRefGoogle Scholar; and North, Douglass C. and Thomas, Robert Paul, The Rise ofthe Western World:A New Economic History (New York: Cambridge University Press, 1973)CrossRefGoogle Scholar.

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¹⁰ For an exception, see Besley, Timothy, “Property Rights and Investment Incentives: Theory and Evidence from Ghana,” Journal ofPolitical Economy 103 (October 1995)CrossRefGoogle Scholar. This article is perhaps closest in spirit to Duch, Raymond R. and Palmer, Harvey, “It's Not Whether You Win or Lose, but How You Play the Game: Self-interest, Social Justice, and Mass Attitudes toward Market Transition,” American Political Science Review 98 (August 2004)CrossRefGoogle Scholar.

¹¹ Black, Bernard, Kraakman, Reinier, and Tarassova, Anna, “Russian Privatization and Corporate Governance: What Went Wrong,” Stanford Law Review 52 (October 2000)CrossRefGoogle Scholar.

¹² Vedemosti, July 18, 2003.

¹³ Timothy Frye, “Property Rights and Property Wrongs in Russia: Evidence on the Legitimacy of Privatization from a Survey of the Mass Public” (Paper presented at the annual meeting of the American Economics Association, Chicago, January 4–7, 2007). Ten percent of respondents disagreed or more or less disagreed with the statement, and 14 percent replied that it was hard to answer.

¹⁴ Wealth redistribution continued after privatization because groups grown powerful from their control over former state assets were especially well placed to shape public policy in their favor. See Barnes, Andrew, Owning Russia: The Struggle over Factories, Farms and Power (Ithaca, N.Y.: Cornell University Press, 2006)Google Scholar.

¹⁵ In an address to the Russian Chamber of Commerce in December 2003, President Putin insisted that not all privatization deals violated the law: “We often hear that laws were complicated and impossible to comply with. These are the statements of those who did not observe them. This is rubbish. Those who wanted to observe the law did so.” More ominously, he added: “If five or seven people did not observe the law it does not mean that everybody did the same.” This quote sparked a guessing game about which businessmen would be the next to suffer the fate of Khodorkovsky.

¹⁶ According to the Central Bank of Russia, for only the second time since 1992 more capital flowed into than out of Russia in the second quarter of 2003. In the third quarter, following Lebedev's arrest, capital flight soared to $7.6 billion. In 2004 capital flight exceeded $8 billion in an economy that grew by 7.1 percent.

¹⁷ Cited in Verdery, Kathryn, What Was Socialism and What Comes Next? (Princeton: Princeton University Press, 1996), 210Google Scholar.

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²¹ Nathaniel Jensen, “Measuring Risk: Political Risk Insurance Premiums and Domestic Political Institutions” (Manuscript, Department of Political Science, Washington University, St. Louis, Mo., 2006).

²² Among others, see Ledeneva, Alena, Russia's Economy of Favours (Cambridge: Cambridge University Press, 1998)Google Scholar; but see Hendley, Kathryn, Murrell, Peter, and Ryterman, Randi, “Law Works in Russia: The Role of Law in Interenterprise Transactions,” in Murrell, Peter, ed., Assessing the Value ofthe Rule ofLaw in Transition Economies (Ann Arbor: University of Michigan Press, 2001)Google Scholar.

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²⁵ Stiglitz and Hoff (fn. 3) also treat privatization in Russia as guided by a Coasian view of property rights.

²⁶ For a description of good works by the holding companies Interros and Evraz-Holding, see http://www.interros.ru/eng/human/and http://www.evrazholding.ru/ru/ecology/charity.

²⁷ See the appendixes for descriptive statistics of the firms in the sample, the distribution of firms by sector, the text of the public goods question, and descriptive statistics of the variables.

²⁸ Frye (fn. 13) repeated the survey experiment with the mass public in a nationally representative survey in October 2006. In both surveys, responses to the manipulations were similar, but the mass public viewed privatized property as less legitimate than did the managers.

²⁹ Hellman, Joel, Jones, Geraint, and Kaufmann, Daniel, “Seize the State, Seize the Day: An Empirical Analysis of State Capture and Corruption in Transition Economies,” Journal ofComparative Economics 31 (December 2003)Google Scholar.

³⁰ Survey-based experiments raise issues of internal and external validity. Concerns about internal validity arise “when the treatment does not exactly correspond to the construct that is envisioned as the independent variable.” Green, Donald P. and Gerber, Alan S., “Reclaiming the Experimental Tradition in Political Science,” in Katznelson, Ira and Milner, Helen V., eds., Political Science: The State of the Discipline (New York: Norton Press, 2002), 811Google Scholar. Internally valid experiments capture the true causal process claimed by the researcher. External validity generates concerns about whether the results produced in an experiment travel outside the setting in which the experiment is conducted. This is a greater threat to the validity of experiments conducted in a laboratory setting, but the threat is also present in field experiments.

³¹ As managers are typically the largest shareholders in the firm, it is appropriate that they be held responsible for the firm's actions.

³² One way to improve the experiment would be to randomly assign whether violations of the Law on Privatization were major or minor. This would provide a cleaner test of the original sin argument, but doing so would make it more difficult to identify relationships by reducing the number of observations in each cell. Given the novelty of embedding experiments in a survey in Russia and the relatively small number of respondents, I took a conservative approach by manipulating only the two types of good works.

³³ This is a minimalist treatment of the legitimacy of property rights that requires only that respondents oppose a review of the privatization described in the experiment to be seen as viewing the privatization outcome as legitimate.

³⁴ It is important to note that these responses were not generated using random assignment. Each respondent was asked about both major and minor violations; I simply compare the mean response. These results depend in part on question format. In a survey of the mass public that used the same experiment but also randomly assigned the severity of the violations of law, the original sin argument was insignificant when public goods were provided but was significant when they were not; Frye (fn. 13).

³⁵ In analyzing the individual determinants of responses to these scenarios, I found some evidence that younger managers have a “more conditional” view of property rights controlling for a variety of firm- and individual-level factors. They were more likely to reward “good works” and more likely to punish “bad works” than were their older counterparts, suggesting that a socialization process is at work. Results available from the author.

³⁶ Alexei Goriaev and Konstantin Sonin, “Is Political Risk Company-Specific? The Market Side of the YUKOS Affair” (Manuscript, Center for Economic and Financial Research [CEFIR], MOSCOW, 2005), 1.

³⁷ More specifically, one might like to estimate a statistical model that regresses a proxy for the security of property rights on a dummy variable for the good use of an asset (proxied here by investment), a dummy variable for public goods provision, and the interaction of these two dummy variables. This specification would require a behavioral proxy for secure property rights other than investment.

³⁸ Firms privatized with minor violations of the law may also have incentives to provide public goods, given the difficulty of distinguishing firms privatized with minor violations of the law from those privatized with major violations of the law. Thus, firms that provide public goods are not necessarily revealing that their rights were obtained with significant violations of the law. Indeed, they may view the provision of public goods as a costly signal to try to distinguish themselves from those who benefited most from a corrupt privatization.

³⁹ Leonid Polishchuk, “Biznesmeny i Filantropy: korporativnaya blagotvoritel'nost v Rossii” (Manuscript, Center for Economic and Financial Research, Moscow, 2005).

⁴⁰ The dummy variable treatment of public goods provision is crude, but asking for estimates of funds spent on public goods would likely have produced unreliable responses. An additive index that tallies each type of public good provided produces similar results. These responses may be biased upward, as managers may have wanted to paint themselves in a positive light. To the extent that some respondents overstated the provision of public goods but not levels of investment, this bias should make it harder to find a relationship between the two.

⁴¹ In a nonrepresentative 2006 survey of 210 business leaders, government officials, and researchers in Russia, respondents cited “administrative pressure from authorities” and “business development strategies” as common reasons for the participation of firms in social programs. Maria Levitov, “State Pressure Motivates Most Corporate Giving,” Moscow Times, February 14, 2006.

⁴² Similar results are produced by other proxies for relations with the government, including ratings of the performance of the governor and ratings of the extent to which the governor is motivated by the good of the region.

⁴³ The results are unchanged if a variable that captures concerns for the quality of managers, rather than workers, is included. The two measures are highly correlated.

⁴⁴ Results are not altered by other proxies for performances, such as a subjective measure of the financial condition of the firm and a variable for whether a firm made a profit, broke even, or lost money in the last year.

⁴⁵ Dropping variables related to bribes to the regional governor increases the number of observations by about 10 percent. Doing so does not affect the results of the variables of interest.

⁴⁶ The results also hold using continuous measures of changes in investment in capital goods and new technologies, respectively. Results are available from the author.

⁴⁷ The provision of public goods is no guarantee that rights will be respected. YUKOS conducted a highly visible campaign to improve its image but ultimately lost its property. Given the great public enmity toward the owners of YUKOS, perhaps no amount of good works could have changed the outcome.

⁴⁸ Some of these questions are addressed in Frye (fn. 13).

⁴⁹ Andy Baker, “Consuming the Washington Consensus: Mass Responses to the Market in Latin America” (Manuscript, Northeastern University, Boston, 2006), chap. 4.

⁵⁰ Research Department Inter-American Development Bank, “The Privatization Paradox,” Latin American Economic Policies 18 (2002)Google Scholar.

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