Private firms, city government, and credible commitment: The case of St. Petersburg, 1986-1993

This thesis examines the relationship between private firms and local government in St. Petersburg and illustrates the effects of Soviet and Russian laws upon the behavior of firms. Despite the collapse of the Soviet Union, a basic question for accomplishing economic reforms in Russia remains: How to establish workable institutions of Federal and local government which at once protect property rights and erode rent-seeking behavior by local officials?; The thesis shows how centrally sponsored economic reforms affected local institutions governing property rights differently under Soviet and post-Soviet Russian rule and comes to the following conclusions: (1) The formal institutions that governed property rights in Soviet Leningrad were too weak to produce credible commitment to stable property rights, a collective good that both fosters economic growth through positive incentives to entrepreneurs and erodes rent-seeking activity. (2) Property rights became more stable for private firms in St. Petersburg after the collapse of the Soviet Union because new judicial institutions enabled local government agencies to commit more credibly to contracts with private firms. We can expect the state's capacity to credibly commit private property rights to grow whenever local firms sue government agencies and win.; In sum, credible commitment displaces the economic rent of patronage whenever an independent court rather than political preference decides who wins when property rights are disputed. Thus, the Russian Federation's courts provide an important resource for private firms seeking legal safeguards against government interference and confiscation of property.