New Economic School Annual Report, 2005-2006

РОССИЙСКАЯ ЭКОНОМИЧЕСКАЯ ШКОЛА N E W E C O N O M I C S C H O O L

Современная экономическая наука и образование в России Excellence in economics in Russia

New Economic School Annual Report, 2005-2006

Moscow, August 2006

NES Annual Report 2005-2006 1 TABLE OF CONTENTS

RECTOR’S INTRODUCTION ...... 4 ACADEMIC PROGRAM...... 6 NES ACADEMIC PROGRAM ...... 6 NES ACADEMIC REQUIREMENTS...... 8 FACULTY...... 11 FULL-TIME FACULTY MEMBERS ...... 11 Tenured Faculty...... 11 Tenure-Track Faculty...... 12 PART-TIME FACULTY MEMBERS ...... 12 VISITING FACULTY ...... 13 RESEARCH...... 14 RESEARCH CENTER ...... 14 Projects...... 14 Conferences ...... 15 Publications...... 15 SELECTED PUBLICATIONS OF NES FACULTY...... 17 NES AND CEFIR SEMINARS...... 19 NES/CEFIR Public Seminars ...... 19 CEFIR/NES Research Seminars...... 19 NES/CEFIR Job Market Seminars ...... 21 ZVI GRILICHES DISTINGUISHED LECTURES ...... 21 STUDENTS AND APPLICANTS...... 22 PROFILE OF CURRENT STUDENTS ...... 22 Table 1: Students Enrolled at NES in 2005-2006 ...... 22 RECRUITING ACTIVITIES...... 22 Table 2: Applicants: 2005 vs 2006...... 22 Table 3: NES Admissions Activities ...... 23 ENTRANCE EXAMINATIONS ...... 24 TUITION AND FINANCIAL AID...... 24 Figure 1: Composition of the Incoming Classes With Respect to Tuition Waivers ...... 24 GRADUATES ...... 25 2006 GRADUATES AT A GLANCE ...... 25 CAREER OF NES GRADUATES ...... 26 Selected Employers in Russia...... 26 Study Abroad ...... 27 Academic Placement...... 27 Table 4: Academic Placement of NES Graduates...... 27 OUTREACH ...... 31 REGIONAL SEMINAR FOR EXCELLENCE IN TEACHING...... 31 EXECUTIVE EDUCATION ...... 31 FACILITIES ...... 32 LIBRARY...... 32 COMPUTER RESOURCES...... 32

NES Annual Report 2005-2006 2 FINANCES...... 34 Figure 2: Distribution of NES Revenues in AY 2005-2006 by Source ...... 34 Figure 3: Sources of Revenues in AY 2006-2007, plan...... 34 MAJOR FUNDERS ...... 34 AMERICAN FRIENDS OF NES (AFNES)...... 35 FINANCIAL SUPPORT FROM BUSINESS, VARIOUS ORGANIZATIONS, AND INDIVIDUALS ...... 35 TUITION FEES AND LOANS...... 35 Figure 4: Tuitions and Loans in 2002-2006...... 36 GOVERNANCE ...... 37 BOARD OF DIRECTORS (BOD) ...... 37 INTERNATIONAL ADVISORY BOARD (IAB)...... 37 RUSSIAN ADVISORY BOARD (RAB) ...... 38 RECTORATE ...... 38 ACADEMIC COMMITTEE ...... 38 ADMISSIONS COMMITTEE ...... 39 APPENDICES...... 40 APPENDIX 1: COURSE OFFERINGS FOR 2005-2006...... 40 Module I: September 5 – October 30, 2005 ...... 40 Module II: October 31 – December 25, 2005 ...... 42 Module III: January 10 – March 5, 2006...... 43 Module IV: March 6 – May 3, 2006 ...... 45 Module V: May 10 – July 3, 2006 ...... 47 English Language Instruction ...... 48 APPENDIX 2: FACULTY RESEARCH PROFILES...... 50 APPENDIX 3: THESES ABSTRACTS, 2005-2006 ...... 63 APPENDIX 4: SUMMARY OF RESEARCH PROJECTS, 2005-2006 ...... 83 APPENDIX 5: CONFERENCE PROGRAMS ...... 93 XVIII Research Conference (November 2005)...... 93 XIX Research Conference (May 2006)...... 96 APPENDIX 6: NES PUBLICATIONS, 1998-2006...... 99 Best Student Papers...... 99 Working Papers ...... 102 Lectures Notes ...... 105 APPENDIX 7: BACKGROUND INFORMATION ON STUDENTS ...... 106 Class of 2006 ...... 106 Class of 2007 ...... 108 APPENDIX 8: APPLICANT PROFILE 2006 ...... 112 APPENDIX 9: PLACEMENT OF CLASS OF 2006 ...... 113 APPENDIX 10: NES DIRECTORY ...... 115

NES Annual Report 2005-2006 3 RECTOR’S INTRODUCTION

The academic year 2005-06 was yet another year of new exciting developments for the New Economic School. After going through a management succession, and a major governance reform, the School finalized its new mission and a new strategic plan for 2005-10. The strategic plan emphasized the focus on quality of research and teaching in its core masters program in economics. The strategic plan also included opening up a new masters program in finance and an overhaul of its economic policy track within the existing economics program. The plan has also called for adequate investment in fundraising and cost recovery to assure the School’s financial sustainability.

The School has proceeded according to the plan. We have graduated our largest class of 67 Masters of Arts in Economics. Most of the graduates found exciting jobs in Russia’s private sector and think tanks. Our reputation in the Russian job market has improved substantially. Thanks to the efforts of our newly hired Placement Officer Svetlana Volkova, we have established strong relationships with employers in Moscow, including all the major global investment banks and consulting companies; 20 of them came to the School to present their case to the students and many more advertised their job openings via the placement office.

As usual, a third of our graduating class went abroad to continue their studies in the leading PhD programs in the US, Canada and Europe. This included the placement of three graduates at Stanford (one of them was also offered Harvard and MIT), one in Princeton, and one in LBS.

Our alumni continue to succeed in academic, government and the private sector both in Russia and abroad. Ksenia Yudaeva became an Academic Director of the leading government-affiliated think tank Center for Strategic Research. Our faculty keeps on publishing in the top refereed journals. We have made yet another step in integrating NES and CEFIR by joining both the Boards and the management structures. With the faculty unification having already happened last year, we are now exploiting substantial synergies of the integration.

We have continued recruiting faculty: we hired Alexei Savvateev (NES’97) as a new Assistant Professor of Economics. After obtaining his PhD from Russian Academy of Science Alexei went for a postdoc at Catholic University Louvain, (CORE) and has already published in international refereed journals.

This has also been a good year for NES’ visibility and fundraising within Russia. For the first time in its history, NES has obtained state accreditation from Russian Ministry of Education and Science. NES has also taken part in the first independent ranking of Russian universities and received highest scores on all dimensions.

It was the first year in our history when the funding from international foundations – OSI’s Higher Education Support Program, Ford Foundation, and MacArthur Foundation – counted for less than half of our budget. With the help of the newly hired Director for Development Alexei Sitnikov we have established a diversified revenue portfolio. We have tripled the number of named professorships. In addition to Human Capital Foundation and Access Industries who have supported academic chairs at NES for three years, this year we have established partnerships with BP, SUAL, SUEK, Sovkomflot, and UBS. NES also acknowledges support from Mr. Peter Aven, Boeing Corporation, Citigroup Foundation, Nadezhda Brezhneva Foundation, and PINE Foundation. NES has also carried out two major sponsored research projects for the Central Bank and for the Ministry of Education and Science.

This was also the first year of the bank-based student loan program. Through our partnership with Russian Standard Bank we have offered our students the best terms in Russia: 12 year loan with 2 year grace period at USD 10% p.a. We have continued providing full or partial tuition waivers and fellowships to selected students. For the first time in the history of NES we have supplemented merit-based fellowships with the need-based ones.

I am especially delighted to recognize the support from our alumni. Dr. Ilya Strebulaev (NES’99, PhD LBS, Assistant Professor of Finance at Stanford GSB) has continued to support NES students’ applications to PhD programs. Irina and Alexander Aganin (NES’95) have established a Student Support Fund that has provided 3 need-based scholarships.

NES Annual Report 2005-2006 4 We have moved on to establishing an endowment. We have received the first capital grant from MacArthur Foundation and are now working on registering a legal entity for the endowment.

We have also launched a few partnerships with leading Russian universities. Starting this Fall NES will take part in a joint undergraduate program of Moscow Institute of Physics and Technology, Academy for National Economy, Institute for Economies in Transition, and MorganStanley. We will also participate in Higher School of Economics’ newly established Multidisciplinary Center for Advanced Studies.

Next year will become yet another year of new challenges. NES will also reinforce its Economic Policy track, first adding several new courses on economic policy and political science taught by resident and visiting faculty, second, taking part in the New Experts workshop with Russian policymakers hosted by the Center for Strategic Research.

NES will open a new Masters in Finance program supported by MorganStanley in January 2007. It will be an exciting development both for NES – that has never taught to mid-career professionals and has not opened a new program since its very establishment in 1992 – and for the Russian labor market – that has been suffering from the lack of qualified finance cadre for a few years now.

In the coming year, we will redouble our efforts in hiring new faculty on the international job market, work on providing the resident and visiting faculty with resources and incentives to do research and teach, and students with the best learning environment. We can only accomplish our mission if we focus on quality of teaching and research. As it has been since 1992, the academic quality will remain our first and foremost priority in years to come.

Rector

Sergei Guriev

NES Annual Report 2005-2006 5 ACADEMIC PROGRAM

The New Economic School is committed to providing a Master’s level degree program in economics of a standard equal to that of Western European and North American universities. Since few of our students have studied economics before enrolling, the program consists of three components. First, it begins with intermediate level undergraduate courses in economics, as well as advanced courses in mathematics, probability and statistics. These are intended to introduce students to the fundamental concepts of economic theory and to enrich their knowledge of the basic tools of economic analysis. Second, students are offered a standard set of courses in graduate level economic theory and the range of elective courses dealing with a variety of applied topics as well as with special issues of transition to market economy. These courses are comparable in content and standard to those offered in the framework of first year PhD programs at top universities in North America and Western Europe. Third, students are required to write a term paper and an MA thesis, based on the research projects undertaken jointly with NES faculty. The term papers and the theses are regarded as part of the training essential for a career of a professional economist.

In the last few years a larger number of our graduates have preferred to work in the private sector rather than continue their studies as PhD students. To meet their demand we have tried to strengthen the applied side of our Academic Program. In 2002-2003, we introduced an experiment of offering 5 special “applied” fields of study (Finance, Data Analysis, Economic Policy, Industrial Organization and Managerial Economics). To get a specialization, a second year student had been required to take 7 one-module courses from a related list. However, there were complaints that this system resulted in crowding out other courses, which were not required for any special category. In the AY2003-2004 the Managerial Economics was omitted from the list of specialized fields, which reduced the minimum requirement for a special field to 4 courses, and 2 fields in Advanced Micro and Macro (theoretical rather than applied) were added.

In 2004-2005 as well as in 2005-2006, the Program and Requirements remained substantially the same. However, several advanced courses were added to the Program. In 2004-2005, there were delivered such courses as Law and Economics, Antitrust, Topics in Empirical IO. The Program of 2005-2006 contained a considerably developed course on Trade Policy (28 lectures instead of 14), and a new course on Banks and Russian Banking System. The courses cover comparatively new areas of applied economics, and they enriched our Special Field Programs. All our graduates received Diplomas with special fields, many of them with two or more fields.

The Academic Program for 2005-2006 and the NES Academic Requirements may be seen below. Appendix 1 contains the synopses of the courses.

NES Academic Program

Module 1, September 5 – October 21, Exams: October 22-30 Year 1 Course Professor(s) Year 2 Course Professor(s) Microeconomics 1 R. Gronau Macroeconomics 6 (required) N. Volchkova O. Moav (two streams) Macroeconomics 1 V. Popov Econometrics 4 (required) S. Anatolyev K. Sossunov (one stream) Probability Theory S. Aivazian Foundations of Finance A. Goriaev P. Katyshev Mathematics for V. Polterovich Recursive Macroeconomics 1 A. Deviatov Economists 1 E. Golstein, A. .Shananin, V. Bulavsky English English Dept.: Growth and Development* O. Moav O. Marenkina V. Salistra R. Burdonskaya Labor Economics I* R. Gronau Theory of Contracts A. Bremzen Economics of Transition V. Popov Natural Resources O. Eismont

NES Annual Report 2005-2006 6 Module 2, October 31 – December 16, Exams: December 17-25 Year 1 Course Professor(s) Year 2 Course Professor(s) Microeconomics 2 G. Kosenok (two Applied Time Series S. Anatolyev streams) Econometrics Macroeconomics 2 K. Sossunov Theory of Economic Reform* V. Polterovich (two streams) Mathematical Statistics S. Aivazian Markets and Auctions for a A. Vasin A. Peresetsky Homogeneous Divisible Good Mathematics for A. Dmitruk Russia’s Financial System E. Gurvich Economists 2 M. Levin V. Bulavsky English English Dept. Industrial Organization 1* O. Eismont Political Economy K. Sonin

E. Zhuravskaya Recursive Macroeconomics 2 A. Deviatov Investment Theory A. Goriaev

Module 3, January 10 – February 24, Exams: February 25 – March 5 Year 1 Course Professor(s) Year 2 Course Professor(s) Microeconomics 3 S. Guriev Public Economics I* V. Makarov A. Tonis Macroeconomics 3 V. Polterovich Industrial Organization II* G. Kosenok N. Volchkova Games 1 K. Sonin International Trade* V. Polterovich A. Bremzen Econometrics 1 A. Peresetsky Auctions K. Sonin (two streams) English English Dept. Regulation O. Eismont Corporate Finance 1 S. Stepanov Topics in Econometrics S. Anatolyev Econometrics of Financial A. Goriaev

Markets Monetary Theory A. Deviatov Russia in the Global L. Fridman

Environment: Past and Present History of Economic Thought V. Avtonomov (required) N. Makasheva O. Ananyin

Module 4, March 6 – April 21. Exams: April 23 – May 3 Year 1 Course Professor(s) Year 2 Course Professor(s) Microeconomics 4 G. Kosenok Corporate Finance 2 S. Stepanov L. Polishchuk Macroeconomics 4 A. Deviatov Economics of Corruption M. Levin (two streams) Games 2 A. Bremzen Public Economics II* L.Polishchuk (two streams) Econometrics 2 P. Katyshev, Trade Policy 1 K. Yudaeva, (two streams) N. Volchkova, D.Tarr English English Dept. Labor Economics II* I. Denisova Open Macroeconomics* K. Sossunov Behavioral Economics A. Suvorov Financial Risk Management A. Goriaev Empirical IO G. Kosenok History of Economic Thought V. Avtonomov (required) N. Makasheva O. Ananyin

NES Annual Report 2005-2006 7 Module 5, May 10 – June 23. Exams: June 25 – July 3 Year 1 Course Professor(s) Year 2 Course Professor(s) Microeconomics 5 A. Suvorov Advanced Topics in Finance O. Grishchenko (two streams) Macroeconomics 5 K. Styrin Advanced Asset Pricing O. Grishchenko (two streams) Comparative Economic V. Popov Trade Policy 2 K. Yudaeva, Systems and Centrally N. Volchkova, Planned Economies D. Tarr (elective) Econometrics 3 S. Anatolyev Banks, Russian Banking System A. Peresetsky (two streams) A. Karminsky English English Dept. History of Economic Thought V. Avtonomov (required) N. Makasheva O. Ananyin The sign * means that the course belongs to a general field.

NES Academic Requirements

To complete ME program each student had to fulfill the following academic requirements:

1. One had to get 20.5 credits in total. 2. One had to get 14.5 credits for the Obligatory Courses (for all students) (see Table 1). 3. One had to get not less than 1.5 credits for the General Fields (Table 2); some courses from at least three different General Fields had to be taken. 4. Each student had to choose one out of three options: A) to get 3.5 credits for the General Fields (Table 2), or B) to get 2.5 credits for one of the Special Fields described in Tables 3-5, or C) to get 2.0 credits for one of the Special Fields, described in Tables 6-8, and not less than 2.0 credits for the General Fields (Table 2). 5. One had to write a term paper and Master Thesis.

Second year students had to announce their choices not later than November 1, 2005.

Table 1. Obligatory Courses for all students No Course Credit 1 Macroeconomics1-6 3.0 2 Microeconomics 1-5 2.5 3 Math. for economists 1.0 4 Probabilities 0.5 5 Math. Statistics 0.5 6 Game Theory 1.0 7 Econometrics1-4 2.0 8 Hist. Of Econ. Thought 1.0 9 Research Seminar 2.0 10 English 1.0 Total 14.5

Table 2. General Fields and Field Courses No Field Course Professor 1 Development Economics Growth and Development O. Moav Theory of Economic Reform V. Polterovich 2 Industrial Organization Industrial Organization I O. Eismont Industrial Organization II G. Kosenok 3 International Economics International Trade V. Polterovich Open Macroeconomics R. Sosunov 4 Labor Economics Labor Economics I R. Gronau Labor Economics II I. Denisova 5 Public Economics Public Economics I V. Makarov Public Economics II L.Polishchuk

NES Annual Report 2005-2006 8

Table 3. Special Field: Finance No. Course Professor 1. Foundations of Finance A.Goriaev 2. Investment Theory A. Goriaev 3. Applied Time Series S. Anatolyev Econometrics 4. Corporate finance I S. Stepanov 5 Corporate finance II S. Stepanov 6 Financial Risk Management A.Goriaev 7. Econometrics of Financial A. Goriaev Markets 8. Advanced Topics in Finance O. Grishchenko 9 Advanced Asset Pricing O. Grishchenko 10. Banks, Russian Banking A. Peresetsky System A. Karminsky

Table 4. Special Field: Economic Policy No Course Professor 1 Public Economics I V. Makarov 2 Public Economics II L. Polishchuk 3 Theory of Economic Reform V. Polterovich 4 International Trade V. Polterovich 5 Transition V. Popov 6 Political Economy K. Sonin E. Zhuravskaya 7 Regulation O. Eismont 8 Trade Policy 1 K.Yudaeva, N.Volchkova, D.Tarr 9 Trade Policy 2 K.Yudaeva, N.Volchkova, D.Tarr 10 Russia’s Financial System E. Gurvich 11 Russia in the global A. Fridman environment: past and present

Table 5. Special Field: Industrial Organization and Trade No Course Professor 1 Industrial Organization I O. Eismont 2 Industrial Organization II G. Kosenok 3 Regulation O. Eismont 4 International Trade V. Polterovich 5 Contract Theory A. Bremzen 6 Trade Policy 1 K. Yudaeva, N. Volchkova, D.Tarr 7 Trade Policy 2 K. Yudaeva, N. Volchkova, D.Tarr 8 Auctions K. Sonin 9 Markets and Auctions for a A. Vasin Homogeneous Divisible Good 10 Empirical IO G. Kosenok

Table 6. Special Field: Data Analysis No Course Professor 1 Applied Time Series S. Anatolyev Econometrics 2 Topics in Econometrics S. Anatolyev 3 Russia’s Financial System E. Gurvich 4 Transition V. Popov 5 Empirical IO G. Kosenok 6 Econometrics of Financial A. Goriaev Markets

NES Annual Report 2005-2006 9

Table 7. Special Field: Advanced Microeconomics No Course Professor 1 Contract Theory A. Bremzen 2 Auctions K. Sonin 3 Behavioral Economics A. Suvorov 4 Markets and Auctions for a A. Vasin Homogeneous Divisible Good 5 Economics of Corruption M. Levin

Table 8. Special Field: Advanced Macroeconomics No Course Professor 1 Monetary Theory A.Deviatov 2 Recursive Macroeconomics I A. Deviatov 3 Recursive Macroeconomics II A. Deviatov 4 Open Macroeconomics A.Sosunov 5 Natural Resources O. Eismont 6 Growth and Development O. Moav

NES Annual Report 2005-2006 10 FACULTY

In academic year 2005-2006, NES continued to offer tenure-track positions to candidates with PhDs, specifically targeting NES graduates. As a result of its job market activities NES had hired Alexei Savvateev as a new Assistant Professor of Economics. Alexei holds a PhD in Economics from CEMI RAS. He also graduated from NES in 1997 with Diploma summa cum laude and Don Patinkin Prize and from the Lomonosov Moscow State University (Mathematics and Mechanics Department) in 1995, also with Diploma summa cum laude. He went for a postdoc to Catholic University of Louvain, (CORE). His fields are game theory with application to political economy, mechanism design and incentive contracts with application to regulation in public sector.

In November 2005, the NES International Advisory Board made its second tenure decision and appointed Ekaterina Zhuravskaya a tenured Associate Professor of Economics at NES. Ekaterina Zhuravskaya (NES’94) received her PhD from Harvard University and has published extensively in the leading refereed journals, including Quarterly Journal of Economics, Journal of European Economic Association, Journal of Business, Journal of Public Economics, Journal of Law, Economics and Organization, American Law and Economics Review, Economics of Transition. She is the Academic Director of CEFIR at NES and is teaching a graduate course in Empirical Political Economics at NES.

In addition to permanent faculty, there were also 6 visiting professors, 26 part-time lecturers and 35 part- time teaching assistants. Among full-time and part-time faculty, there are 2 members of the Russian Academy of Science, 12 PhDs, and the others have degree of Doctor or Candidate of Science. 8 NES professors have joint appointments with CEFIR at NES. NES graduates, currently pursuing their PhDs, are also involved in teaching, research and outreach activities, and are serving as instructors, project leaders, teaching and research assistants. Continuing its efforts of building a completely indigenous Russian faculty NES plans to make additional tenure-track appointments during the coming years. At the same time NES will continue to invite 5-7 visiting professors every year to sustain the mission of NES as a bridge to the global community of economics.

In academic year 2005-2006, NES has tripled the number of named professorships. In addition to Human Capital Foundation and Access Industries who have supported academic chairs at NES for three years, this year the School has established partnerships with BP, SUAL, SUEK, and Sovcomflot.

The 2003-2005 tradition of faculty’s sabbaticals continued with Oleg Zamulin spending a year at SITE.

The quality of faculty research – the main quality criteria of economics departments – also grew in 2005- 2006. Several articles of NES associate and assistant professors were published in the best international economics journals, including Journal of Money, Credit, and Banking, World Bank Economic Review, and American Economic Review.

The following is a list of those who taught at NES during AY 2005-2006. See also Appendix 2 for research profiles of NES Associate and Assistant Professors.

Full-Time Faculty Members

Tenured Faculty

Valery Makarov, Academician, CEMI RAS Sergei Guriev, Human Capital Foundation Public Economics Associate Professor of Corporate Finance, PhD (doctorate in economics), postdoc, MIT Victor Polterovich, Academician, CEMI RAS Microeconomics 3 Mathematics for Economists, Macroeconomics 3, International Trade, Theory of Economic Reform Ekaterina Zhuravskaya (NES’94), Hans Rausing Associate Professor of Economics, PhD, Harvard Vladimir Popov, PhD (doctor) University Macroeconomics 1, Economics of Transition, Political Economy Comparative Economic Systems and Centrally Planned Economies

NES Annual Report 2005-2006 11 Tenure-Track Faculty

Stanislav Anatolyev (NES’95), Access Industries Microeconomics 2, 4, Industrial Organization II, Assistant Professor of Economics, PhD, University of Empirical IO Wisconsin-Madison Econometrics 3, 4, Topics in Econometrics, Applied Alexei Savvateev (NES’97), PhD, CEMI RAS Time Series Econometrics Will teach since fall 2006

Andrei Bremzen (NES’99), BP Assistant Professor Konstantin Sonin (NES’98), SUEK Assistant of Economics, PhD, MIT Professor of Economics, PhD in Mathematics, Theory of Contracts, Games 1, 2 Moscow State University Political Economy, Games 1, Auctions Irina Denisova, PhD, University of Manchester Labor Economics II Sergey Stepanov (NES’00), PhD, Université Libre de Bruxelles Alexei Deviatov (NES’96), PhD, Pennsylvania State Corporate Finance 1, 2 University Recursive Macroeconomics 1, 2, Macroeconomics 4, Anton Suvorov (NES’99), PhD, Universite de Toulouse Monetary Theory Behavioral Economics, Microeconomics 5

Alexei Goriaev, PhD in finance, Tilburg University Ksenia Yudaeva (NES’94), PhD, MIT Foundations of Finance, Investment Theory, Trade Policy 1, 2 Econometrics of Financial Markets, Financial Risk Management Oleg Zamulin, Sovcomflot Assistant Professor of Economics, PhD, University of Michigan Grigory Kosenok (NES’95), SUAL Assistant In 2005-2006 on leave to SITE Professor of Economics, PhD, University of Wisconsin-Madison

Part-Time Faculty Members

Sergei Aivazian, CEMI RAS Evsey Gurvich, EEG Probability Theory, Mathematical Statistics Russia’s Financial System

Oleg Ananyin, HSE Alexander Karminsky, Moscow State Technical History of Economic Thought University n.a. N.E. Bauman, Gazprombank Banks, Russian Banking System Vladimir Avtonomov, HSE History of Economic Thought Pavel Katyshev, CEMI RAS Probability Theory, Econometrics 2 Victoria Balashova, HSE English Mark Levin, CEMI RAS Mathematics for Economists 2, Economics of Vladimir Bulavsky, CEMI RAS Corruption Mathematics for Economists 1, 2 Victor Makarenko, MGIMO Regina Burdonskaya, NES English English Natalya Makasheva, HSE Andrei Dmitruk, CEMI RAS History of Economic Thought Mathematics for Economists 1 Olesia Marenkina, NES Oleg Eismont, Institute of Systems Analysis RAS Head of English Dept. Natural Resources, Industrial Organization 1, Regulation Alyona Nikolskaya, NES English Leonid Fridman, Moscow State University Russia in the Global Environment: Past and Present Anatoly Peresetsky, CEMI RAS Mathematical Statistics, Econometrics 1, Banks, Eugeny Golstein, CEMI RAS Russian Banking System Mathematics for Economists 1 Valeria Salistra, NES English

NES Annual Report 2005-2006 12

Alexander Shananin, Computer Center RAS Maria Tulupova, HSE Mathematics for Economists 1 English

Kirill Sossunov (NES’96), PhD (Australian Alexander Vasin, Moscow State University National University), HSE Markets and Auctions for a Homogeneous Divisible Macroeconomics 1, 2, Open Macroeconomics Good

Alexander Tonis (NES’98), CEMI RAS Natalya Volchkova (NES’98), CEFIR Microeconomics 3 Macroeconomics 3, 6, Trade Policy 1, 2

Visiting Faculty

Olesya Grishchenko, Pennsylvania State Leonid Polishchuk, University of Maryland University Public Economics 2, Microeconomics 4 Advanced Topics in Finance, Advanced Asset Pricing Konstantin Styrin (NES’01), Harvard University Macroeconomics 5 Reuben Gronau, Hebrew University Microeconomics 1, Labor Economics 1 David Tarr, World Bank Trade Policy 1, 2 Omer Moav, Hebrew University Microeconomics 1, Growth and Development

NES Annual Report 2005-2006 13 RESEARCH

This section describes the various activities undertaken at NES to maintain its mission as a research university.

Research Center

The NES Research Center was opened in 1995 and since then more than 90 research projects have been conducted by some 500 second year students and dozens of research directors and assistants. Each project produces 3-6 research reports and papers, some by students and some by the project heads. Every team runs its own weekly seminar devoted to their research topics. All participating students write term papers and complete their Master's theses under supervision of their research leaders (see Appendix 3 for the abstracts of master theses in the AY 2005-2006). The best Master’s theses are published in the Best Student Papers series. Project leaders’ papers are publishing as NES Working Papers. Many of these are presented at various international and Russian conferences, and are published in economic journals. NES conducts two annual research conferences in Spring and Fall.

The Research Committee of the School oversees research at NES. The Committee is composed of members of the International Advisory Board and permanent faculty members. The members for AY 2005- 2006 were as follows:

Professor Barry W. Ickes Co-Chairman Academician Valery Makarov Co-Chairman Professor Stanislav Anatolyev Director Olga Kryukovskaya Coordinator

Projects

1. Structural breaks and structural change in financial and other series Leader: Stanislav Anatolyev (NES)

2. Topics in institutions and microeconomics Leaders: Andrei Bremzen (NES), Anton Suvorov (NES, CEFIR)

3. Mutual funds Leader: Alexei Goriaev (NES)

4. Dictators and Oligarchs Leaders: Sergei Guriev (NES, CEFIR), Konstantin Sonin (NES, CEFIR)

5. Incidence and Duration of Poverty in Russia Leader: Irina Denisova (CEFIR, NES)

6. Imperfect Information and Bounded Rationality with Applications to Macroeconomic Dynamics Leader: Alexei Deviatov (NES)

7. Analysis of Russian Energy Markets Leaders: Oleg Eismont (NES), Sergey Chernavsky (CEMI)

8. Shake-out in IO Leader: Grigory Kosenok (NES)

9. Economics of Education Leader: Valery Makarov (NES)

NES Annual Report 2005-2006 14 10. Trend of the Banking Sector in Russia and Bank Ratings V Leaders: Anatoly Peresetsky (NES), Alexander Karminsky (MGTU, Gazprombank); Consultant: Bertrand Melenberg (Tilburg University)

11. Resource Abundance, Globalization, and Economic Development Leaders: Victor Polterovich (NES, CEMI), Vladimir Popov (NES, Carleton University)

12. Corporate governance and optimal design of corporate law in emerging markets Leader: Sergey Stepanov (NES)

13. Network Markets for Homogeneous Goods Leader: Alexander Vasin (MSU), Consultants: Francisco Marhuenda (University Karlos III), Polina Vasina (ISA RAS)

14. Causes of Resource Dependence of the Russian Economy: the "Dutch Disease" or Insufficiently Developed Institutions? Leader: Natalia Volchkova (CEFIR)

15. Monetary and fiscal policy in the resource-base economy Leader: Kirill Sosunov (NES) Consultant: Elena Sharipova (Institute for Open Economy)

The brief results of this year research projects presented in the Appendix 4.

Conferences

Between 1995 and 2006 the NES Research Center organized nineteen conferences where faculty and students presented their research. These conferences give NES an opportunity to disseminate the research results to a wider research community in Moscow. The conferences were attended by NES students and faculty, professional economists from government organizations and the private sector, academic institutes and international agencies. These conferences perform an outreach function for the Moscow community, and provide our student researchers with invaluable presentation experience before a well-informed and critical audience. The Spring Conference presentations are given by NES students involved in research projects. As a rule, these presentations reflect the results of their work on Master’s theses. The Center's activities for the academic year are brought together in a Fall conference where leaders of each project report the results of their research. This conference also strives to introduce new students to the School's research activities.

The format of the conferences is as follows. A Distinguished Lecture is delivered by a well-known western researcher. A Russian government economist or businessmen gives a Keynote Address on current economic policy. The participation of internationally renowned economists and practitioners intensifies discussions of current economic problems and attracts a broader audience. Speakers in last year included Jan Magnus (Tilburg University), Ruben Vardanian (Troika Dialog Group), Kenneth Rogoff (Thomas D. Cabot Professor of Public Policy and Professor of Economics, Harvard University), William Joseph Burns (Ambassador of the United States of America to the Russian Federation).

The programs of the 2005-2006 year conferences are included in Appendix 5.

Publications

Since 1998, NES is publishing three publication series. The working paper series presents the recent research of NES-affiliated faculty and staff; there is also a series of the best student papers and a series of lecture notes. Electronic versions of most of these papers are available through the NES homepage at www.nes.ru. Since 1998, 84 Best Student Papers, 70 Working Papers, and 16 Lectures Notes have been published in English and/or Russian. The publications are disseminated to Russian universities, academic libraries, and economic research institutes as well as Western transition economics research centers.

Appendix 6 contains the complete list of NES publications since 1998. The list of NES publications for the AY 2005-2006 period is as follows.

NES Annual Report 2005-2006 15

Best Student Papers

Zhukova N. Resource Abundance and Economic Growth: the Role of Institutional Development

Zak N. The Mysterious Market for Drugs and Vaccines

Zakolyukina A. Politically Connected Firms: Effect on Bankruptcy

Kushnir A. Collective Action Problem in Revolutions

Malenko A. Oligarchic Capitalism and Financial Development

Muravyev D. Do Russian Mutual Funds Overperform the Market?

Potekhin I. Role of Attitude to Risk in the Migration Decision-Making

Working Papers

Anatolyev S. A unifying view of some predictability tests

Anatolyev S., Shabalin A. Model complexity and model performance

Bremzen A., Egorov G., Shakin D. Electoral Mandate and Voting Behavior: Evidence from Russian State Duma

Vasin A., Vasina P. Electricity Markets Analysis and Design

Volchkova N., Gorshkova E., Lobanov S., Turdyeva N., Khaleeva J., Yudaeva K. Microsimulation analysis of the consequencies of monetization of social benefits in Russia

Goriaev A., Sonin K. Is Political Risk Company-Specific? The Market Side of the Yukos Affair

Guriev S., Kvasov D. Imperfect Competition in Financial Markets and Capital Structure

Denisova I., Kartseva M. Poverty is no crime: measuring poverty in Russian regions

Deviatov A., Ickes B. Reputation and the Soft-Budget Constraint

Zamulin O., Sosunov K., Sheynzon I. The Equilibrium Current Account in Russia: How Important is the Precautionary Saving Motive?

Katyshev P., Polterovich V. Reform policies, initial conditions, and transformational recession

Peresetsky A., Karminsky A., Golovan S. Retail business of Russian banks. Heterogeneity of interest rates on private deposits

Polishchuk L., Firsov E. Cause-related marketing: an economic analysis

Polterovich V., Popov V. Democratization, Quality of Institutions and Economic Growth

Polterovich V., Tonis A. Hiring Strategies and the Evolution of Honesty

Chernavsky S., Eismont O. Prospects for a Liberalized Natural Gas Market in Russia

Haile P., Hortacsu A., Kosenok G. On the Empirical Content of Quantal Response Equilibrium

NES Annual Report 2005-2006 16 Selected Publications of NES Faculty

The following is a partial list of the publications by NES faculty that have appeared in peer-reviewed international journals and as book chapters in the last academic year.

Stanislav Anatolyev “Optimal instruments in time series: a survey”, Journal of Economic Surveys, forthcoming.

“Trade intensity in the Russian stock market: dynamics, distribution and determinants” (with Dmitry Shakin), Applied Financial Economics, forthcoming.

“Kernel estimation under linear-exponential loss”, Economics Letters, 2006, 1: 39–43.

“GMM, GEL, Serial Correlation, and Asymptotic Bias”, Econometrica, 2005, 73(3): 983–1002.

“An Alternative to Maximum Likelihood Based on Spacings” (with Grigory Kosenok), Econometric Theory, 2005, 21(2): 472-476.

“A Trading Approach to Testing for Predictability” (with Alexaner Gerko), Journal of Business and Economic Statistics, forthcoming.

“Inference When a Nuisance Parameter Is Weakly Identified under the Null Hypothesis”, Economics Letters, 2004, 84(2): 247-256.

“The Form of the Optimal Nonlinear Instrument for Multiperiod Conditional Moment Restrictions”, Econometric Theory, 2003, 19(4): 602-609

Alexei Goriaev “Yet Another Look at Mutual Fund Tournaments” (with Theo Nijman and Bas Werker), Journal of Empirical Finance, 2005, 12(1): 127-137.

Sergei Guriev “Patents vs Trade Secrets: Knowledge Licensing and Spillover” (with Sudipto Bhattacharya), Journal of European Economic Association, forthcoming.

“Smuggling Humans: A Theory of Debt-Financed Migration” (with Guido Friebel), Journal of European Economic Association, forthcoming.

“Attaching Workers through In-Kind Payments: Theory and Evidence from Russia” (with Guido Friebel), World Bank Economic Review, September 2005.

“Contracting on time” (with Dmitriy Kvasov), American Economic Review, 2005, 95(5): 1369-1385.

“Should I Stay or Can I Go: attachment of workers through in-kind payments” (with Guido Friebel), World Bank Economic Review, Sept. 2005.

“The Role of Oligarchs in Russian Capitalism” (with Andrei Rachinsky), Journal of Economic Perspectives, 2005, 19(1): 131-150.

“Red Tape and Corruption”, Journal of Development Economics, 2004, 73(2): 489-504

“Determinants of Interregional Mobility in Russia”, (with Yuri Andrienko), Economics of Transition, 2004, 12(1): 1-27

“Barter for Price Discrimination”, (with Dmitry Kvassov), International Journal of Industrial Organization, 2004, 22 (3): 329-350

“Incomplete Contracts with Cross-Investments”, Contributions to Theoretical Economics, Berkeley Electronic Journals on Theoretical Economics, 2003, 3(1), Article 5

NES Annual Report 2005-2006 17 Grigory Kosenok “An Alternative to Maximum Likelihood Based on Spacings” (with Stanislav Anatolyev), Econometric Theory, 2005, 21(2): 472-476.

Victor Polterovich “Institutional Traps: Is There a Way Out?”, Social Sciences, 2005, 36(1): 30-40.

“Accumulation of Foreign Exchange Reserves and Long Term Economic Grouth”, In: Slavic Eurasia’s Intergration into the World Economy. Ed. by S.Tabata and A.Iwashita. Slavic Research Center, Hokkaido University,2004.

Vladimir Popov “Fiscal Federalism in Russia: Rules versus Electoral Politics”, Comparative Economic Studies, 2004, 44(4), Dec. 2004: 515-541.

“Down and Up the Stairs: Paradoxes of Russian Economic Grouth” (with Maria Gorban, Natalya Volcnkova, Ksenia Yudaeva), In: The Economic Prospects of the CIS. Ed. by G.Ofer and R.Pomfret. Edward Elgar Publishing,2004.

“Currency Crises in Russia and Other Transition Economies”, In: International Financial Governanceunder Stress. Global Structures versus National Imperatives. Ed. by R.D.Underhill, Xiaoke Zhang. Cambridge University Press, 2003.

Konstantin Sonin “A Theory of Brinkmanship, Conflict, and Commitment” (with Michael Schwarz), Journal of Law, Economics, and Organization, forthcoming.

“Information Revelation and Efficiency in Auctions” (with Anna Mikusheva), Economics Letters, 2004, 83: 277-284.

“Why the Rich May Favor Poor Protection of Property Rights”, Journal of Comparative Economics, 2003, 31(4): 715-731.

Ksenia Yudaeva “New Political Economy of Russia” (with Erik Berglof, Andrei Kunov, Julia Shvets), MIT Press, 2004.

“Does Foreign Ownership Matter? Russian Experience” (with Konstantin Kozlov, Natalia Melentieva, Natalia Ponomaryova), Economics of Transition, 2003, 11(3)

Oleg Zamulin “Foreign Currency Pricing” (with Irina Levina), Journal of Money, Credit, and Banking, 2006, 38(3): 679-696.

Ekaterina Zhuravskaya “Who Are the Russian Entrepreneurs?” (with Simeon Djankov, Edward Miguel, Yingyi Qian, Gerard Roland), Journal of European Economic Association Papers and Proceedings, 2005, 3(2- 3): 587-597.

“Laws for Sale: Evidence from Russia” (with Evgeny Yakovlev and Irina Slinko), American Law and Economics Review, 2005, 7: 284-318.

“Opportunistic Political Cycles: Test in a Young Democracy Setting” (with Akhmed Akhmedov), Quarterly Journal of Economics, 2004, 119(4): 1301-1338.

“Federal Tax Arrears in Russia: Liquidity Problems, Federal Redistribution, or Regional Protection?” (with Maria Ponomareva), Economics of Transition, 2004, 12(3): 373-398.

NES Annual Report 2005-2006 18 NES and CEFIR Seminars

NES and Center for Economic and Financial Research at NES host two seminar series: a biweekly Public Seminar and a weekly Research Seminar. The public seminar is intended for prominent Russian and foreign scholars, policymakers and private sector representatives present their views on topical issues in a non-technical fashion accessible to general public.

The research seminar is a conventional academic seminar where Russian and visiting academic economists present their research in all fields of economics. These seminars are open to all who have an interest in the topic, and are announced to the public through our electronic mailing list. The following are the lists of seminars for the academic year 200-2006 (including job market ones).

NES/CEFIR Public Seminars

Maxim Trudolyubov, Editor, Opinion page, Gur Ofer, The Hebrew University of Jerusalem Vedomosti The Soviet Growth Record Revisited Journalism and the Conflict of Interest Christof Ruehl, Deputy Chief Economist, BP Evgeny Yasin, Academic director of HSE Energy Prices and Energy Security Presentation of the Book “Will Democracy Survive in Russia” Stephen Cecchetti, International Business School, Brandeis University Ruben Vardanian, Troika Dialog Group Drop in the Volatility of Real GDP Growth and Its Problems of Investment Banking Possible Causes

Dmitri Trenin, Deputy Director, Program Co-chair, Kirill Dmitriev, Managing Director, Delta Private Senior Associate, Carnegie Moscow Center Equity Partners LLC Russian Foreign Policy toward the U.S. and Europe Private Equity in Russia: Lessons from Experience

Nikolai Kovarsky, Independent Consultant William Burns, US Ambassador to Russia The Russian Economy's Darker Side: M&A Russian The Future of US-Russian Relations style Alexander Piatigorsky Maria Lipman, Editor-in-Chief, Pro et Contra Political Economy and Sociology Journal, Carnegie Moscow Center Russian Press: Freedom Which Never Became Institutionalized

CEFIR/NES Research Seminars

Vladimir Ivanenko, University of Western Ontario Harry Huizinga, Tilburg University and CEPR Market and Democracy in Russia: the Importance International Profit Shifting within European of Being Normal Multinationals

Andreas Woergoetter, OECD Nikolay Arefiev, Universite Paris-1, HSE Economic Development in Germany After Optimal Policy Without Expropriation Unification Tatiana Kornienko, University of Stirling Does competition affect giving? An experimental Omer Moav, Hebrew University, CEPR study Natural Selection and the Evolution of Life Expectancy Maria Yudkevich Professor – University Relationships: Incentives for Investment in Joint Future

NES Annual Report 2005-2006 19 Timofiy Mylovanov, University of Bonn Law Enforcement and Firms' External Finance: Negative Value of Informed Principal Problem with Evidence from Russia Independent Private Values Alex Possajennikov, University of Nottingham Ilya Voskoboinikov, Vladimir Bessonov, HSE Cooperation and Competition: Evolution of On Dynamics of Capital and Investment in the Preferences in Games Russian Economy during Transition Stephen Cecchetti, International Business School, Bulat Sanditov, University of Maastricht Brandeis University Size of innovation, patent citations, and path- Monetary Policy and Asset Price Bubbles dependency in technical change Elena Pokatovich, Mark Levin, HSE John Earle, Upjohn Institute for Employment Economics of Illegal Services: Red Light, Blue Research Background Unexpected Wage Losses and Unemployment Duration of Displaced Workers Bertrand Melenberg, Tilburg University Model Risk and Regulatory Capital Alexander Semenov Venture Investment and Complicated Contracts: Georgy Egorov, Sergei Guriev, and Konstantin Russian Practice Sonin, NES and CEFIR Media Freedom, Bureaucratic Incentives, and the Natalia Volchkova, CEFIR Resource Curse: A Study in Non-democratic Bilateral Trade between Russia and China Politics

Yuliya Meshcheryakova, Victoria University of Anatoly Peresetsky, Alexander Karminsky, Wellington Sergei Golovan, NES and CEFIR Macroeconomic Effects of International Russian Banks Private Deposit Interest Rates and Outsourcing Deposit Insurance

Serguey Braguinsky, State University of New Bernard Black, University of Texas at Austin - York at Buffalo School of Law Competitive Innovation and Information Flows in a The Anatomy of Financial Tunneling in an Growing Industry Emerging Market

Jennyfer Hunt Mikhail Klimenko, Georgia Institute of Bribery: Who Pays, Who Refuses, What Are The Technology Payoffs? FDI Policies in Industries with Network Externalities Christian Gianella, OECD 35 Hours Week: a Reassessment of the Long Run Andrei Markevich, University of Warwick Employment Effects The Dictator’s Dilemma: to Punish or to Assist? Control Party Commission under Stalin Natalia Ponomareva, University of Sydney Forecastability of Inflation and Nominal Income Stanislav Kolenikov, University of Missouri Growth. The Case of Korea Bayesian Statistical Methods

Anastasia Kartasheva, Georgia State University Maxim Nikitin, HSE Entry Deterrence in Ratings Market Deterrence, Lawsuits, and Litigation Outcomes Under Court Errors Andrei Bremzen, NES, Georgy Egorov, and Dmitry Shakin Nikolai Roussanov, University of Chicago – Electoral Mandate and Voting Behavior: Evidence Graduate School of Business from Russian State Duma Status, Diversification, and Entrepreneurial Risk

Timothy Frye, Ohio State University Sergey Tsyplakov, Moore School of Business, Original Sin, Good Works, and Property Rights in University of South Carolina Russia: Evidence from a Survey Experiment of Investment Frictions and Leverage Dynamics Business Elites Scott Gelbach, University of Wisconsin-Madison The Impact of Interstate War on Domestic Political Tymofiy Mylovanov, University of Bonn Institutions Noisy Information Transmission Ruben Enikolopov, Harvard University Julia Shvets, Corpus Christi College, University of Public Employment and Vote Buying Cambridge

NES Annual Report 2005-2006 20 Maria Petrova, Harvard University Mass Media and Special Interest Groups Oleg Shchetinin, University Toulouse-1 Altruism in Career Concerns Model Viktor Subbotin, North-Western University Bootstrap of the Maximum Rank Correlation Alexander Matros, University of Pittsburgh Estimator An Election Model

Aleh Tsyvinski, Harvard University New Dynamic Public Finance: A User's Guide

NES/CEFIR Job Market Seminars

Gauhar Turmuhambetova, Princeton and Consumption In the Buffer Stock Model of Decision Making in an Economy with Endogenous Savings Information Brad Strum, Princeton University Michael Schwarz, RWJ Scholar, University of Discretionary Monetary Policy Design in a Sticky- California at Berkeley Price Input/Output Economy Bid Ask Spreads and Market Microstructure: Are Narrow Spreads Always Feasible? Barbara Bukhvalova, Haas School of Business, University of California at Berkeley Leonid Azarnert, Tel-Aviv University Monitoring Costs and Portfolio Choices Free Education: When and Where? Alexei Savvateev, CEMI, Moscow, and CORE, Anton Nakov, Universitat Pompeu Fabra Louvain-La-Neuve, Belgium Optimal and Simple Monetary Policy Rules with Coalition-Proof Incentive Contracts Zero Floor on the Nominal Interest Rate Salavat Gabdrakhmanov, University of Chicago Yaraslau Zayats, University of North Carolina at Competitive Innovation and Information Flows in a Chapel Hill Growing Industry Schooling, Wages, and the Role of Unobserved Ability in the Philippines Nurlan Turdaliev, McGill University, Montreal Central Bank Communication Dmytro Hryshko, University of Houston Informational Assumptions on Income Processes

Zvi Griliches Distinguished Lectures

Zvi Griliches was one of the founders of the New Economic School in Moscow and one of its main academic architects. Zvi served as a member of the NES International Advisory Board from its inception untill his death in 1999. During this period, Zvi visited NES many times. He taught econometrics, and helped to shape the NES program in econometrics. Zvi also helped to enlist the first cohort of visiting professors to NES and opened the door for the first graduates of NES to the best graduate schools in the US for PhD studies. In 2001, in Zvi’s memory, the International Advisory Board of NES, with the full approval of the NES community, decided to establish annual series of lectures in economics, “The Zvi Griliches Distinguished Lectures.” They are presented by leading economists and are open to economic community of Russia and to the general public.

Among the first speakers were Olivier Blanchard, Ex-Chair of the Economics Department of MIT and member of the International Advisory Board of NES (2001-02), Ariel Pakes, professor of Economics at Harvard University (2002-03), Roger Myerson, William C. Norby Professor of Economics at University of Chicago (2003-04), Alberto Alesina, Nathaniel Ropes Professor of Political Economics and Chairman of the Department of Economics at Harvard University.

The fifth speaker was Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University, presented in May 2006 two lectures on Oil and the Global Economy, and Exchange Rate and Commodity Price Volatility and Productivity Growth: The Role of Financial Development.

NES Annual Report 2005-2006 21 STUDENTS AND APPLICANTS

This section profiles our current students at entry, and provides a description of our recruiting activities and the applicant profiles.

Profile of Current Students The following section provides a demographic profile of the first and second year students enrolled at NES in the academic year 2005-2006. The Appendix 7 reflects the personal information on education prior to enrolling at NES, regional diversity and gender of students.

Table 1: Students Enrolled at NES in 2005-2006 CLASS OF 2007 CLASS OF 2008 % % Registered students 85 100% 93 100% Profile of regular students Average age 23,2 22,1 Men 62 73% 71 76% Women 23 27% 22 24% Married 1 1% 6 6% Non-Muscovites 40 47% 39 42% Educational background and degrees: Mathematics 42 49% 35 38% Physics 16 19% 22 24% Economics 3 4% 12 13% Main Universities students came from MSU 31 36% 32 34% MIPT 22 26% 24 26% NSU 11 13% 8 9% HSE 3 4% 3 3% Students from other Universities 18 21% 26 28% Plan to pursue studies at the PhD level 24 28% 33 35% Citizenship Russia, Ukraine, Russia, Ukraine, Moldova, Kazakhstan, Moldova Kazakhstan, Belorussia, Tadzhikistan

Recruiting Activities

In the summer of 2006, admission exams were held in Moscow, Novosibirsk, and Vladivostok as in the previous year, and also in St. Petersburg and Yekaterinburg. Exams in Almaty (Kazakhstan) were not held because of lack of interest from students involved in Bolashak program. Administration of the exams in different sites gives applicants from other regions the opportunity to take the exams without traveling to Moscow. See below the comparative data for the applicants of 2005 and 2006.

Table 2: Applicants: 2005 vs 2006 City 2005 2006 Applied Accepted* Enrolled Applied Accepted* Enrolled Moscow 147 103 90 173 92 80 Novosibirsk 23 15 13 25 9 9 Vladivostok 6 0 0 5 0 0 Almaty 2 1 1 - - - St. Petersburg - - - 3 2 1 Yekaterinburg - - - 5 4 3 Total 178 119 104 211 107 93 * Including those on the waiting list.

NES Annual Report 2005-2006 22

Appendix 8 provides information about the individuals applied to NES in the summer of 2006.

To attract the most prepared perspective applicants, NES representatives participated in career fairs, career days, and other career events in the Moscow universities and institutes; performed NES presentations at the Moscow universities and institutes; participated in the Moscow – St. Petersburg employment exhibition – fair “Young Careerist”. NES also distributed its advertising production at high schools.

NES has elaborated its admissions materials: the statement of structure of the central selection committee, the subject commissions, the Directory, Grants, Positions and Rules, etc. Information support is always available at the section for applicants of the NES website. An exchange of advertising materials with high schools-partners was performed. Besides, a database of students of the Moscow high schools (more than 500 addresses) was developed and address distribution of the advertising information about NES and its activities to students’ groups was performed.

Table 3: NES Admissions Activities Date Event Place October 19, 2005 NES at Career Fair at the Faculty of Physics Moscow State University, of M.S.U. Faculty of Physics October 21, 2005 NES at Career Day at the Higher School of Higher School of Economics Economics November 22, 2005 NES Presentation at the Faculty of Physics of Moscow State University, M.S.U. Faculty of Physics November 22, 2005 NES at Career Day at the Moscow Institute of Moscow Institute of Physics and Physics and Technology Technology December 1, 2005 NES Presentation at the Faculty of Mechanics Moscow State University, and Mathematics of M.S.U. Faculty of Mechanics and Mathematics December 3, 2005 NES Openhouse New Economic School December 6, 2005 NES at Career Day at the Moscow State Moscow State University University December 14, 2005 NES Presentation at the Moscow Institute of Moscow Institute of Physics and Physics and Technology Technology December 14-15, 2005 NES at Moscow – St. Petersburg Career Fair Peoples Friendship University of “Young Careerist” Russia March 14, 2006 NES Presentation at the Moscow Institute of Moscow Institute of Physics and Physics and Technology Technology March 16, 2006 NES at Career Fair at the Moscow State Moscow State Technical Technical University n.a. N.E. Bauman University n.a. N.E. Bauman (MGTU) (MGTU) March 23, 2006 NES at Career Day at the Higher School of Higher School of Economics Economics March 29, 2006 NES Presentation at the Faculty of Physics of Moscow State University, M.S.U. Faculty of Physics April 7, 2006 NES at Career Day at the Moscow Institute of Moscow Institute of Physics and Physics and Technology Technology April 8, 2006 NES Openhouse New Economic School April 18, 2006 NES at Moscow – St. Petersburg Career Fair Moscow Institute of Foreign “Young Careerist” Affairs April 18, 2006 NES Openhouse at the Ural State University Yekaterinburg April 20, 2006 NES at Career Day at the Faculty of Moscow State University, Economics of the Moscow State University Faculty of Economics

In 2005-2006, NES continued its efforts to help applicants prepare for the entrance examinations. In Moscow, NES conducted English preparatory evening courses for three groups of prospective applicants (36 academic hours each), and two preparatory evening courses in Math (50 academic hours and 100 academic hours). In Novosibirsk, NES organized a 60 academic hours evening preparatory course in Mathematics.

NES Annual Report 2005-2006 23

Entrance Examinations

As in previous years, entrance exams in 2006 consisted of tests in Mathematics and English, and an Economics essay. Since 2003, almost no modifications were introduced to the exam procedure. The only innovation is that NES started to accept official results of GRE subject test in mathematics as a substitute for NES mathematics test.

The Mathematics exam is a multiple-choice test, consisting of two parts, each of them two hours long. The test covers major topics in calculus and linear algebra. The English exam is analogous to TOEFL, and an increasing number of applicants choose to submit the results of the formal TOEFL exam instead of taking the test at NES. Economics essay is designed to evaluate the applicant’s interest in economics and the ability to think in economic terms. This essay does not have a failing grade, unlike the mathematics and English exams.

Tuition and Financial Aid

Over the last several years, in accordance with the strategic plan, NES has been gradually adopting a tuition-based system, with the aim that ultimately most students should cover major share of their education expenses. Tuition was raised from US $2,000 in 2001 to $4,425–4,925 (difference in $500 arises if a student lives in dormitories provided by NES) starting in 2005. In addition, the number of students with tuition waivers has been reduced substantially. Simultaneously, NES offers various forms of financial aid to selectively accepted students. Financial aid is given out in three major forms: (i) merit-based fellowships or grants distributed in the form of full or partial tuition waivers for the top students; (ii) student loans; (iii) need-based stipend together with a work-study program.

Figure 1: Composition of the Incoming Classes With Respect to Tuition Waivers

120

100

80

60

40 # students with no tuition waiver 20 Partial tuition waivers granted

0 full tuition waivers 2003 2004 2005 2006 granted

Since most of the students do not have the ability to pay for their full-time education, NES helps such students by arragning student loans. Until 2005 these loans were administered through the Moscow office of American Friends of NES, the US-based non-profit organization. Beginning 2005, the administration of this program has been taken over by the Russian Standard Bank. The terms of the loan are much more favorable to students than any other known loan schemes on the Russian financial markets. All admitted students have access to these loans, which have to be repaid with interest in the ten years following graduation. In 2006, 35 students (or 51%) of the 68 without full waivers chose to take out these loans.

Many students also have limited access to funds to cover basic needs during their studies. To help these students NES introduced need-based social stipends in 2005. Six students received a stipend equivalent to US$60 per months based on demonstrated financial difficulties. Likewise, students continue to have access to a work-study program, in which they work for NES three hours a week and receive a salary of $5 per hour.

NES Annual Report 2005-2006 24 GRADUATES

2006 Graduates at a Glance

The following 69 students graduated from NES as the Class of 2006 and were granted degrees at the Annual Commencement Ceremony held on 6 July 2006.

The Don Patinkin Prize for the top student in the graduating class was awarded to Nadezhda Zhukova, Ivan Lazarev and Andrey Malenko. Four students were recognized for the exceptional quality of their Master’s theses. These included Nikolay Zak, Anastassia Zakolyukina, Georgy Kartashov and Dmitry Muravyev. Nadezhda Zhukova, Ivan Lazarev and Andrey Malenko were voted the Best Teaching Assistants among the second year students who served as teaching assistants.

Summa Cum Laude Cum Laude 1. Nadezhda Zhukova 1. Maxim Vorobiev 2. Ivan Lazarev 2. Georgy Kartashov 3. Andrey Malenko 3. Alexey Kushnir 4. Andrey Rachkov 5. Nikita Roketskiy Diplomas 1. Levon Atanassian 2. Oleg Baranov 32. Dmitry Lisitsyn 3. Dmitry Bianko 33. Irina Luschevskaya 4. Rostislav Bogoslovsky 34. Iya Malakhova 5. Sofia Borisova 35. Jury Malyavkin 6. Maria Bulytcheva 36. Olga Martynova 7. Yaroslav Volkov 37. Dmitry Maruschkevitch 8. Julia Voloshina 38. Ekaterina Maruschkevitch 9. Tatyana Vyatkina 39. Egor Matveyev 10. Alexey Galanin 40. Vladimir Mnogoletniy 11. Alexander Glebov 41. Dmitry Muraviev 12. Konstantin Golyaev 42. Kseniya Panidi 13. Olga Gorelkina 43. Elena Pastukhova 14. Anna Grishina 44. Natalia Pereldik 15. Timur Gusmanov 45. Konstantin Petrov 16. Mikhail Dubovichev 46. Konstantin Pravednikov 17. Dmitry Dubovsky 47. Bella Rabinovich 18. Stanislav Dyachkov 48. Alexander Radaev 19. Aleksandra Evtifyeva 49. Ruslan Sadriev 20. Nikita Zhelezny 50. Vadim Safonov 21. Larisa Zaitseva 51. Loubov Startseva 22. Nikolay Zak 52. Elena Suslova 23. Anastassia Zakolyukina 53. Elena Trukhacheva 24. Daria Kaygorodtseva 54. Yana Ukhaneva 25. Aliaksandr Kalenik 55. Igor Khmel 26. Sergey Kovbasyuk 56. Konstantin Chernyshev 27. Yana Kovrigina 57. Egor Chistyakov 28. Olga Kostyurina 58. Olga Shatalova 29. Irina Kuznetsova 59. Ivan Shkrebela 30. Olga Lampe 60. Julia Shkurat 31. Vladislav Leontiev 61. Alexander Shulzhenko

By the time of graduation more than 85% of the graduated class have been either already employed or enrolled into the PhD program abroad. The majority of them are staying in Russia. Out of 69, only 14 graduates will continue their studies in doctoral programs abroad, 3 will work in academia and think tanks in Russia, and others will work in the private sector. The detailed information about placement of graduates of Class 2006 is presented in the Appendix 9.

NES Annual Report 2005-2006 25 Career of NES Graduates

In July 2006, NES graduated its thirteenth class bringing the total number of graduates to 556. Out of them, more than 300 are working in Russia, including 200 in the private sector, mostly in international companies, investment banks, and consulting. Others pursued a career in academia, government and think tanks, including NES and CEFIR. About 180 graduates are working or studying abroad. Out of 160 NES graduates who went to continue their studies in the top PhD programs (such Harvard, MIT, Chicago, Stanford, Yale, Northwestern, Columbia, NYU, Penn, LBS, Toulouse and others), 50 have already completed their degrees. More than 30 PhDs work as academic economists in Western universities including MIT, Stanford, Yale, Columbia, Penn, NYU, LSE and others, in the World Bank and IMF, 10 are working in the private sector abroad, and 10 have returned to Russia.

Selected Employers in Russia

Government and International Agencies • Central Bank of Russia • Ministry of Economic Development and Trade • Expert Department of the President of • Ministry of Finance Russia • USAID • Eurasia Foundation • World Bank • International Monetary Fund

Universities and Think Tanks • Carnegie Moscow Center • Institute of Financial Studies • Center for Economic and Financial • Institute for the Economy in Transition Research (CEFIR at NES) • Moscow State University • Center for Strategic Research • New Economic School • Center for Fiscal Policy • Russian Academy of Sciences • Economic Expert Group • State University of Humanities • Higher School of Economics • Urban Economics Institute • Independent Institute for Social Policy

Private Companies and Banks • Accenture • MAIR, Industrial Group • ACNielsen • MetalInvestBank • AGRICO Investment Co. • MindShare, Media Company • Alfa Bank • NIKOIL Investment Banking Group • American Appraisal • PAC Consulting • Boston Consulting Group • Philip Morris International • Branan Management & Financial Consulting • PioGlobal Asset Management • Brunswick UBS • PriceWaterhouseCoopers • Colliers International • Princeton Partners Group • Deloitte & Touche • Raiffeisen Bank • Deutsche Bank • RUSAL • Ernst & Young • Russipoteka • EvrazHolding • Siberian Coal Energy Company • GazPromBank • SobinBank • Hansabank • Societe Generale • ING Barrings • Standard&Poor’s • International Moscow Bank • SUEK • INTERROS • Troika Dialog • Jones Lang LaSalle • United Financial Group • JPMorgan • Vneshtorgbank • KPMG • Wermuth Asset Management

NES Annual Report 2005-2006 26 Study Abroad Including the graduates of previous classes, this year we placed 20 people in the doctoral programs in the US and Europe (16 are the graduates of current year, 3 graduated in 2005 and 1 graduated in 2004). The quality remains extremely high: our graduates are going to Stanford (3 of them), Princeton, Berkeley, NYU, Minnesota, Rochester, LBS, etc.

In AY 2005-2006, NES students applying for PhD programs abroad were able to cover part of the application fees due to the generous contribution of ILya Strebuylaev, Assistant Professor at Stanford University (NES’99) who established a special fund for this purpose and pledged a USD 5,000 contribution for the 2005-2006 academic year.

Academic Placement A number of former NES graduates have come close to completion or fully finished their PhD studies and went to the academic job market this year. The pattern of academic placement of NES graduates looks the following way:

Table 4: Academic Placement of NES Graduates # Name Class PhD from Current Placement Position Cornerstone Research, 1. Alexander Aganin 1995 Harvard University Associate California, USA Cornerstone Research, 2. Irina Aganina 1995 Brandeis University Associate California, USA University of Wisconsin- Assistant 3. Stanislav Anatoliev 1995 NES, Moscow Madison Professor Assistant 4. Maria Arbatskaia 1995 Indiana University Emory University, USA Professor University of Texas - Assistant Washington University, 5. Nina Baranchuk 1998 Dallas, School of Professor in US Management, USA Finance Melbourne University, Assistant 6. Souren Basov 1996 Boston University Australia Professor Pennsylvania State University of Sidney, Assistant 7. Alexei Birulin 1999 University Australia Professor Galina Borisova University of California, Assistant 8. 1996 Yale University, USA (Hale) Berkeley Professor Assistant 9. Andrei Bremzen 1999 MIT, US NES, Moscow Professor Robert Gordon Tatyana Damianovic Stockholm School of Assistant 10. 1994 University, Aberdeen, (Shevtsova) Economics, Sweden Professor UK Rothman School of 11. Assistant Sergei Davydenko 1999 London Business School Business at Toronto Professor University 12. Quantitative Dmitry Davydov 1995 University of Michigan UBS Warburg, USA Analyst 13. Pennsylvania State Assistant Alexey Deviatov 1996 NES, Moscow University, US Professor 14. University of Michigan University of Ottawa, Assistant Anna Dodonova 1998 Canada Professor 15. International Monetary Irina Dolinskaya 1994 Cambridge University Fund 16. FNMA, Washington DC, Financial Dmitry Dubasov 1994 Yale University USA Economist McGill University, 17. University of Michigan Assistant Artyom Durnev 1996 School of Management, Business School Professor USA International Monetary 18. Konstantin Fedorov 1997 John Hopkins University Economist Fund

NES Annual Report 2005-2006 27 Lubin School of Assistant 19. Elena Goldman 1997 Rutgers University Business, New York Professor University of Western Assistant 20. Maria Goltsman 2005 Northwestern University Ontario Professor 21. Pennsylvania State Assistant Sergey Izmalkov 1997 MIT, USA University, US Professor 22. Cornerstone Research, Vladislav Kargin 1996 Boston University Associate USA Robinson College of 23. Anastasia Assistant 1998 MPSE Business, Georgia State Kartasheva Professor University, USA 24. University of Ottawa, Assistant Yury Khoroshilov 1998 University of Michigan Canada Professor University of Exeter, 25. Tatyana Kirsanova 1994 Oxford University School of Business and Lecturer Economics, UK University of North University of Missouri- Assistant 26. Stanislav Kolenikov 1998 Carolina Columbia Professor 27. University of California, Assistant Igor Kopylov 1998 University of Rochester Irvine, USA Professor 28. Tatiana n/g Mathematics, North-

Korobeinikova (1997) Eastern University, US World Bank, 29. Research Leonid Koryukin 1994 University of Delaware Macroeconomics I Officer Department, USA 30. University of Wisconsin- Assistant Grigory Kosenok 1995 NES, Moscow Madison Professor 31. Frontier Economics, Yulia Kossykh 1995 Boston University Consultant London, UK 32. Elena University of Assistant 1996 Yale University Krasnokutskaya Pennsylvania, USA Professor Department of 33. Pennsylvania State Economics, University Dmitry Kvasov 1999 Lecturer University of Auckland, New Zealand 34. University of Missouri, Assistant Oksana Loginova 1998 Duke University Columbia Professor IMF, African 35. Elena Lukoyanova 1998 University of Cambridge Department, Washington Economist DC, USA 36. Stockholm School of University of Pittsburgh, Assistant Alexander Matros 1997 Economics USA Professor Pennsylvania State Assistant 37. Tatiana Mikhailova 1997 Boston University University Professor Deloitte & Touche, 38. Artur Minkin 1997 Wisconsin-Madison Economic Consulting Manager Group, USA 39. Assistant Alexey Onatsky 1996 Harvard University Columbia University Professor 40. Dmitry Novikov 1998 Northwestern University Goldman Sachs University of Notre Visiting 41. University of Chicago, Galina Ovtcharova 1995 Dame, Department of Assistant Business School Finance, USA Professor 42. Elena Panova 1998 Toulouse-1 Brussels 43. Pennsylvania State University of Sidney, Assistant Nina Parfinenko 1998 University Australia Professor Quinsland University of 44. Australian National Vladimir Pavlov 1995 Technology, Brisbane, Lecturer University Australia

NES Annual Report 2005-2006 28 Assistant 45. University of Anna Pavlova 1995 London Business School Professor of Pennsylvania Finance National Exchange Demand 46. Carrier Association, Maria Petukhova 1994 Brown University Analysis Whippany, New Jersey, Manager USA 47. Harvard University Analysis Group, Boston, Nikita Piankov 1997 Associate USA University of 48. Alexander 1995 Tilburg University Nottingham, Lecturer Posazhennikov Nottingham, UK Techno-Economics and Policy Program, College 49. Catholic University of Alexander Repkin 1995 of Engineering, Seoul Leuven National University, South Corea 50. Julia Rodionova 1997 Boston University University of Exeter, UK HR 51. Konstantin Saakov 1999 De Montfort University PWC Consultant 52. London School of Andrei Sarychev 1995 MIT Lecturer Economics, UK Assistant 53. Alexei Savvateev 2003 CEMI NES Professor CPB Netherlands Bureau 54. Victoria Shestalova 1996 Tilburg University for Economic Policy Analysis, Netherlands 55. University of Michigan State Assistant Andrey Shevchenko 1995 Pennsylvania University, USA Professor University of Sydney, 56. Australian National Vladimir Smirnov 1998 Economic Department, Lecturer University Australia NES, Moscow Lecturer 57. Kirill Sosunov 1996 ANU Higher School of Lecturer Economics, Moscow 58. ECARES, Universite Assistant Sergey Stepanov 2000 NES, Moscow Libre de Bruxelles Professor Graduate School of 59. Assistant Ilya Streboulaev 1999 LBS Business, Stanford Professor University, USA 60. Assistant Anton Suvorov 1999 MPSE NES, Moscow Professor IMF, European II 61. Robert Tchaidze 1996 Johns Hopkins University Department, Washington Economist DC, USA Tatiana Pennsylvania State University of Auckland, Assistant 62. 1999 Tchesnokova University New Zealand Professor 63. Alexei Tchisty 1999 Stanford Business School Stern School of Business 64. Assistant Konstantin Tyurin 1994 Yale University Indiana University Professor University of Bristol, 65. Lecturer in Stanislav Volkov 1996 Yale University Department of Statistics Mathematics, UK 66. Universitat Pompeu IMF, Washington DC, Irina Yakadina 1994 Fabra, Spain USA 67. Center for Strategic Academic Ksenia Yudaeva 1994 MIT Research, Moscow Director

NES Annual Report 2005-2006 29 Academic CEFIR, Moscow 68. Ekaterina n/g Director Harvard University Zhuravskaya (1994) Assosiate NES, Moscow Professor

NES Annual Report 2005-2006 30 OUTREACH

During the AY05—06, the New Economic School continued outreach activities which began in 1998. The main goal of the outreach activities is to disseminate NES’s expertise among the provincial universities in Russia and other countries of the former Soviet Union. In the past 7 years, almost 80 outreach workshops and summer schools were conducted for about 750 academics from 160 regional universities and institutes from Russia and the CIS. In AY05-06, NES Outreach Center concentrated its efforts on its long-term project Regional Seminar for Excellence in Teaching, finished in summer 2006. Also, NES faculty conducted executive education workshops.

Regional Seminar for Excellence in Teaching

In 2004, NES began participating in the Regional Seminar for Excellence in Teaching (ReSET), sponsored by the Higher Education Support Program (Open Society Institute, Budapest). Over the course of the three- year-long project entitled “Money and Economic Growth: Linking Theory and Evidence,” a group of 30 instructors from the CIS countries had the opportunity to advance their teaching skills in the areas of macroeconomics and time-series econometrics, and learn to link the seemingly abstract economic theory with empirical evidence.

In August 2004, NES held the first summer session in the framework of the project. Thirty participants were selected from Russia, Ukraine, Moldova, Kazakhstan, Kyrgyzstan, Turkmenistan, and Uzbekistan. This first session laid the foundations for linking macroeconomic questions with econometric research, so as to provide an empirical basis for many of the issues frequently taught within a macroeconomic curriculum. Participants also enjoyed the possibility of using the NES library and photocopying papers and chapters for their own research and teaching. The core resource faculty for this project are Professors Kirill Sosunov and Oleg Zamulin of NES, Professor Alexei Onatski of Columbia University, and NES instructor Sergei Golovan.

Two more summer sessions took place with the same faculty and participants in August 2005 and August 2006, as well as two winter sessions in February 2005 and February 2006. All of the sessions were held in Moscow, with the exception of the final summer session, which was held in Voronezh.

During the academic years 2004-2005 and 2005-2006, the ReSET participants engaged in own individual projects, which they had to report at winter and summer sessions. These projects were predominantly own research, although some participants chose to survey existing literature, replicate well-known results, or develop courses in macroeconomics and econometrics to be taught in their home universities.

The ReSET project is an example of a more targeted and long-term work with regional instructors. In the coming years NES is considering making a stronger commitment to such method of interaction.

Executive Education Besides administering regular workshops, which constitute the major part of the outreach activities, the center also encourages NES faculty to participate in training events organized by other institutions, and sometimes co-sponsors them.

Another part of the executive education at NES were six-day courses specially designed for professionals in banking and finance. The course on Econometric Methods for Risk Management was taught in October 2005 by A. Peresetsky, NES faculty member, A. Karminsky, professor of Bauman Moscow State University of Technologies affiliated with Gazprombank, and S. Golovan, NES faculty member. The course on Measuring Market and Credit Risk by A. Goriaev, NES professor of finance, and D. Dzhangirov, NES faculty member affiliated with the International Moscow Bank, took place in December 2005 and April 2006 in Moscow and in October 2006 in Almaty, Kazahstan.

In May and July 2006, NES professors S. Guriev and A. Goriaev taught twice a one-day executive education course on Financial Modeling to the managers of Siberian Coal Energy Company (SUEK).

NES Annual Report 2005-2006 31 FACILITIES

Library

The New Economic School library has a large collection of economics journals and books in English and Russian languages. Also the fast and easy access to electronic research databases is available at NES library. All resources are continuously updated. This makes the library an extremely important resource for any economist at NES and outside of NES. Originally the library was sponsored by the Open Society and Eurasia Foundations. Nowadays it continues to receive donations from many organizations and individuals who are interested in generous support of the library and the school. In the academic year 2005-2006, a grant from the HESP Foundation has covered a purchase of about 150 new titles in many economic fields such as Macroeconomics, Microeconomics, Econometrics, Labor Economics, Financial Accounting and International Finance.

Currently there are about 10,000 volumes of economic literature, more than 10,000 journal issues of more than 50 well known journal titles and these numbers are steadily increasing every year. The acquisition of these materials serves to meet the demand from the NES Academic Programs and the research projects at NES, CEFIR, and EERC.

The NES graduate students represent the majority of library users. The library is also open for the NES faculty, alumni, and researchers from CEFIR at NES and EERC. Among those who use the library resources are also economists from other Russian educational and research institutes, professional economists of the Russian public and private sectors, and visiting scholars from abroad.

The reading room computers provide access to the NES library resource catalogue with detailed information about the books, journals, and articles. They also allow accessing to various Internet resources such as Jstor, ScienceDirect, Econlit and other databases. The 3M-book alarm system provides the security of library resources.

A new version of electronic catalogue MARC SQL provides a more convenient management of the library collection. The library catalogue can be accessed from any computer within the NES local network. Users can search for a book or a journal not only in the library reading room, but also in computer classes. The faculty and staff members can look up any library material directly from their offices.

Computer Resources

Computing activity at NES centers on networked PCs that are located in computer labs, the library and offices of NES. There are over 100 computers in the network, all of them being Pentium-IV class machines (P4. 2..2.8 GHz, 512 MB RAM). The entire computer environment is built around the local area network and provides easy, fast and reliable communication and sharing of data and software. The network is built using high-performance 1GBit switches and 1GBit servers’ network cards, the users are connected via 100Mbit and 1GBit network switches and interface cards. LAN’s users have access to 5 high-quality networked laser printers.

All desktop computers run Windows XP SP2 operating system, which allows users to access a number of available software packages in addition to the standard set of Microsoft Office 2003 components. Various econometrics software packages are available on the LAN along with a variety of datasets.

The Internet facilities include a comprehensive set of services including e-mail and Web servers. NES is constantly updating its bilingual homepage that contains extensive information and current news about the school, various teaching materials, on-line information for the outreach workshop participants and NES prospective applicants. The information about research of NES graduates, NES working papers, including those in Best Student Papers series, are also available on our web site.

During the AY 05—06 NES implemented several projects, upgraded some of its IT technologies and deployed a number of new ones:

• A comprehensive intranet-based information system MyNES has been launched. MyNES provides extensive informational support to teaching and to related administrative tasks, allows

NES Annual Report 2005-2006 32 efficient data sharing between the students, the faculty and the administration. The beta-version version is already operating, and the work on extending the functionality of the system will continue over the next year. • The first stage of EntrantNES project, a Web-based application supporting the entrance campaign, has been implemented. EntrantNES allows the entrants to receive the relevant information, fill the forms and track the exams’ results online. The technical efficiency of administrative routines related to the entrance campaign has been significantly improved. • The complete IT infrastructure was upgraded from Microsoft Windows Server 2003 environment to Microsoft Windows Server 2003 R2 environment. • Microsoft Virtual Server 2005 technology was implemented which greatly simplified maintenance and increased manageability of many critical services. Hardware of the two NES main servers was upgraded to run the new virtual environment. The majority of servers has been switched to Microsoft Virtual Server 2005 R2 platform. • NES continues to be a subscriber to Microsoft Academic and Subscription Agreement. The Agreement allows to decrease the total cost of software ownership and to simplify license management across the school, gives NES access to an advanced level of technical support and a privilege to upgrade major desktop software during 3 years subscription period. • Microsoft Windows Server Update Services application has been implemented. This server allows information technology administrators to deploy many of the latest Microsoft product updates published on the Microsoft Update site. • The IT department has been using extensively the new intranet platform, allowing efficient communication with users of IT services. • NES enhanced its Internet access security regulations and polices: Microsoft Internet Security and Acceleration Server 2004 was upgraded to Microsoft Internet Security and Acceleration Server 2004.SP1 • NES antivirus technology experienced an improvement: a centralized control system for the antivirus applications, AVP, has been implemented on the basis of a dedicated server. • NES messaging system upgrade: school-wide Microsoft Exchange 2003 was replaced by Microsoft Exchange 2003 SP1. Outlook Web Access is now operating as the main mail client, which allows to use e-mail services via any Internet connection. • NES PC Lab: 20 PCs were renovated. • NES offices: 10 PCs were renovated, a new HP LaserJet 4250 printer installed. • Telephone services: a new 8-channel telephone line, connected to NES PBX, has been installed.

We are constantly working on enhancing the quality of IT services. The main ongoing project for the next year is further development of MyNES information system, which allows to improve the mechanisms of storing and sharing data about the community of NES students, faculty and graduates, as well as academic courses and seminars.

NES Annual Report 2005-2006 33 FINANCES

The most stable source of funding for NES core activities continues to be grants from Western foundations. The major funders continued to be the Soros Foundations (mainly through the Higher Education Support Program), the John D. and Catherine T. MacArthur Foundation and the Ford Foundation. These foundations have supported NES through multiple grants and for an extended period of time. We have in recent years increased our efforts to broaden the funding base by raising local support and securing long- term funding. In addition, NES has increased the share of revenue that comes from tuition fees combined with the student loans.

Figure 2: Distribution of NES Revenues in AY 2005-2006 by Source

Contracts Tuition fees 18% 21%

Donations 21% Grants 40%

Figure 3: Sources of Revenues in AY 2006-2007, plan

Contracts Tuition fees 6% Donations 26% 29%

Grants 39%

Major Funders

Academic year 2004-2005 • Soros Foundation grants supported operating costs of the School, including governance, faculty and administrative salaries, rent and students dormitories costs. • The Ford Foundation supported the tenured track faculty. • The John D. and Catherine T. MacArthur Foundation supported operating costs of the School and tenure-track faculty.

NES Annual Report 2005-2006 34 American Friends of NES (AFNES)

American Friends of NES (AFNES), a tax-exempt, non-profit corporation was established in the USA in early 1996. AFNES is the conduit for NES's activities outside of Russia. The main purpose of AFNES is to serve as a fundraising and public relations organization in support of the New Economic School. AFNES is the spearhead of NES's efforts to raise funds in the West. Through AFNES, efforts are currently being made to gain significant support from private foundations in the United States. AFNES has a representative office in Moscow that is primarily charged with collecting the old student loan and securing the Russkiy Standart loans for NES students.

AFNES Board of Directors

Barry W. Ickes, Pennsylvania State University, President and Treasurer Roman Frydman, New York University, Secretary Herbert Levine, University of Pennsylvania Gur Ofer, Hebrew University of Jerusalem Craufurd D. Goodwin, Duke University Ilya Strebulaev, Stanford University Alexander Aganin, Cornerstone Research

Financial Support from Business, Various Organizations, and Individuals

NES acknowledges support from Mr. Peter Aven, Boeing Corporation, Citigroup Foundation, Nadezhda Brezhneva Foundation, and PINE Foundation. NES has also carried out two major research projects for the Central Bank and for the Ministry of Education and Science.

The School is delighted to recognize the support from NES alumni. Dr. Ilya Strebulaev (NES’99, PhD LBS, Assistant Professor of Finance at Stanford GSB) has continued to support NES students’ applications to PhD programs. Irina and Alexander Aganin (NES’95) have established a Student Support Fund that has provided 3 need-based scholarships.

NES has also moved on to establishing an endowment. The School has received the first capital grant from MacArthur Foundation and is now working on registering a legal entity for the endowment.

In AY 2005-2006, Human Capital Foundation and Access Industries Inc. continued to fund the professor positions established in 2003-2004. Drs. Sergei Guriev and Stanislav Anatolyev hold the chair of Human Capital Foundation Assistant Professor of Corporate Finance and Access Industries Assistant Professor of Economics, respectively. Besides, NES has established partnerships with BP, SUAL, SUEK, and Sovcomflot. Dr. Andrei Bremzen holds the chair of BP Assistant Professor of Economics, Dr. Grigory Kosenok – SUAL Assistant Professor of Economics, Dr. Konstantin Sonin – SUEK Assistant Professor of Economics, and Dr. Oleg Zamulin – Sovcomflot Assistant Professor of Economics

Mr. Peter Aven and the Nadezhda Brezhneva Foundation also continued their support of NES students with charitable donations which covered the full cost of studies at NES in AY 2005-2006. Ivan Lazarev was awarded the Petr Aven student scholarship and Nadezhda Zhukova was awarded the Nadezhda Brezhneva Foundation’s scholarship.

Tuition Fees and Loans

In AY 2005-2006 tuition fees at NES were set at $4425 a year and were applied to all students aside from those who score in the top-third on their entrance exams. Another $500 per year was charged from those students who live in the dormitories (the full cost of living exceeds $1000 per person per year). Increasing the share of tuition in NES revenues is a long-term goal of NES’ strategic plan. For the 2006-2007 academic year the tuition is going to be set on the level of $6000.

All students that are required to pay tuition were able to obtain a student loan from the Russkiy Standart bank, with repayment starting 2 months after graduation. The loan is given for 10 years of repayment under 10% interest rate. The loan program enabled NES to enroll 40 new students in the AY 2005-2006 who would not have been able to afford tuition otherwise (in addition to another 35 students who paid full

NES Annual Report 2005-2006 35 tuition). The increase in the share of tuition-paying students indicates that NES is on the path to achieving the target of having 70% of students pay tuition.

Figure 4: Tuitions and Loans in 2002-2006

80

70

60

50

# of first year of students paying tuition 40 # of first year students paying tuition through the loan program

30

20

10

0 AY 2002-2003 AY 2003-2004 AY 2004-2005 AY 2005-2006

NES also collects fees from preparatory courses in English and mathematics in Moscow and Novosibirsk.

NES Annual Report 2005-2006 36 GOVERNANCE

The present NES governance structure looks the following way:

Board of Directors (BoD)

The NES Board of Directores is directly involved in the decision-making process of the School. It meets bimonthly, approves the School’s Strategic Plan and Budget, forms the Audit Committee and the Executive Compensation Committee, and evaluates performance of the School’s management. The Board consists of eight members:

Maxim Boycko, Chair, Partner, Video International Group; Chair of the RAB Erik Berglof, Chief Economist, EBRD; President of CEFIR; Coordinator of the IAB Arkady Dvorkovich, Head of the Experts' Directorate of the President of Russia; NES’94, President of the NES Alumni Association Mikhail Dmitriev, President, Center for Strategic Research

NES Board Members from left to right: Vladimir Preobrazhensky, Maxim Boiko, Barry Ickes Sergei Guriev, Human Capital Foundation Associate Professor of Corporate Finance, Rector of NES Barry W. Ickes, Professor of Economics, Pennsylvania State University; President of AFNES Valery Makarov, Director of CEMI, Russian Academy of Science; President of NES Vladimir Preobrazhesnky, CFO, SUEK

International Advisory Board (IAB)

Since 1992, the International Advisory Board makes all major academic decisions and oversees the academic activities at NES. It is also responsible, through an Academic Appointment Committee, for all academic appointments and promotions. Its current membership is as follows: Erik Berglof, Coordinator, Chief Economist, EBRD; President of CEFIR Philippe Aghion, Harvard University Beth Allen, University of Minnesota Olivier Blanchard, Massachusetts Institute of Technology John Cochrane, University of Chicago Bengt Holmstrom, Massachusetts Institute of Technology Barry W. Ickes, Pennsylvania State University Jan Magnus, Tilburg University Valery Makarov, Director of CEMI and President of NES Gur Ofer, Hebrew University NES founders and IAB members: Gur Ofer (left) and Valery Makarov Victor Polterovich, CEMI and NES Gerard Roland, University of California at Berkeley Larry Samuelson, University of Wisconsin-Madison

NES Annual Report 2005-2006 37 Russian Advisory Board (RAB)

The NES Russian Advisory Board consists of the leaders of Russian economic transition. RAB discusses all NES matters but concentrates especially on the strengthening the links between NES and the Russian private sector and economic policy community. It helps NES to raise funds in Russia. The current RAB membership is as follows:

Maxim Boycko, Chair, Partner, Video International Group Peter Aven, President, Alfa Bank Len Blavatnik, President, Access Industries, Inc. Arkady Dvorkovich, Head of the Experts' Directorate of the President of Russia Yegor Gaidar, Director, Institute for the Economy in Transition Andrei Illarionov, President, Institute for Economic Analysis Foundation Konstantin Kagalovsky, President, Institute for Contemporary Economic Research Yakov Urinson, Deputy CEO, Russian JSC “Unified Energy System of Russia” Ruben Vardanyan, Chairman of the Board of Directors and CEO, Troika Dialog Group Sergei Vasiliev, Chair, Committee on Financial Markets and Currency Circulation, Federation Council Andrei Vavilov, Director, Institute for Financial Studies, Member of the Federation Council Victor Vekselberg, Chairman of the Board of Directors, OAO “SUAL-Holding” Sergei Vorobiev, Managing Partner, Ward Howell International Oleg Vyugin, Head of the Federal Service for Financial Markets Alexander Zakharov, Deputy Chairman of the Board, Savings Bank of the Russian Federation

Rectorate

Rector of NES works in cooperation with the Board of Ditectors and convenes quarterly meetings of the Rectorate which manages the day to day operations of the School.

In 2005-2006, Rectorate included the following members:

Sergei Guriev, Human Capital Foundation Associate Professor of Corporate Finance, Rector Anatoly Akinshin, Head of Computer Department Stanislav Anatolyev, Access Industries Assistant Professor of Economics, Director of the Research Center Andrei Bremzen, BP Assistant Professor of Economics, Deputy Chair of the Admissions Committee Oxana Budjko, Chief Financial Officer Alexander Fridman, Adviser to the NES President Zarema Kassabieva, Vice-Rector for Academic and Students Affairs Grigory Kosenok, SUAL Assistant Professor of Economics, Head of the Library Committee Valentina Krupina, School Academic Secretary Yulia Kushnarenko, Chief Accountant Olesya Marenkina, English Teaching Unit Victor Polterovich, Academician, First Vice-Rector, Head of the Academic Committee Alexei Sitnikov, Director for Development Oleg Zamulin, Sovcomflot Assistant Professor of Economics, Director of the Outreach Center

Academic Committee

The Academic Committee is formed from IAB members, professors and lecturers, and NES principal officers. The composition for 2005-2006 was as follows:

Academician Victor Polterovich, Chair, First Assistant Professor Andrei Bremzen, Vice-Rector Deputy Chair

NES Annual Report 2005-2006 38 Pavel Katyshev, Secretary, Lecturer Valentina Krupina, School Academic Assistant Professor Stanislav Anatolyev, Secretary Director of the Research Center Professor Mark Levin, Lecturer Professor Erik Berglof, IAB Coordinator Academician Valery Makarov, President Professor Alexander Friedman, Adviser to the Olesya Marenkina, Head of English NES President Language Dept. Assistant Professor Alexei Goriaev Anatoly Peresetsky, Lecturer Associate Professor Sergei Guriev, Rector Professor Vladimir Popov Assistant Professor Irina Denisova Assistant Professor Konstantin Sonin Assistant Professor Alexei Deviatov Assistant Professor Anton Suvorov Oleg Eismont, Lecturer Assistant Professor Ksenia Yudaeva, Academician Revold Entov, Lecturer Academic Director of CSR Professor Barry Ickes, President of AFNES Assistant Professor Oleg Zamulin, Director of the Outreach Center Zarema Kassabieva, Vice-Rector for Academic and Students Affairs Associate Professor Ekaterina Zhuravskaya, Academic Director of CEFIR at NES Assistant Professor Grigory Kosenok, Head of the Library Committee

Admissions Committee

This committee has responsibility for all procedures related to the admission process, including quality control. The Committee oversees all recruitment matters, admissions examinations, and policy on admissions requirements. In early 2005, there was hired a special person to coordinate admission and placement of graduates that allow to cut the number of Committee members to the following team:

Associate Professor Sergei Guriev, Chair, Rector Assistant Professor Andrei Bremzen, Vice-Chair, Chair of the Economics Exam Subcommittee, Svetlana Volkova, Admission and Placement Coordinator Olga Kulagina, Secretary, Preparatory Courses Coordinator Assistant Professor Sergei Stepanov Zarema Kassabieva, Vice-Rector for Academic and Students Affairs Assistant Professor Oleg Zamulin, Chair of the Economics Exam Subcommittee, Director of the Outreach Center Professor Pavel Katyshev, Chair of the Mathematics Exam Subcommittee Olesia Marenkina, Chair of the English Exam Subcommittee Professor Victor Polterovich, Chair of the Academic Committee

NES Annual Report 2005-2006 39 APPENDICES

Appendix 1: Course Offerings for 2005-2006

Module I: September 5 – October 30, 2005

First Year Courses: Microeconomics I R. Gronau, O. Moav This course provides students with a basic grounding in consumer theory. The topics covered initially include Basic Concepts (Scarcity, Transformation Curve, Efficiency, Alternative Costs, Comparative Advantage, Trade Specialization, Allocation and Distribution: the Market Solution and the Central Planner’s Solution); Household Behavior – Demand for Goods (Budget Constraint and Consumer Preferences, Linear and Non-linear budget constraints, Preferences, Principles of rationality, Utility, Consumer’s Choice, Constrained Optimization, Comparative Statics, Income and Price Effects, Elasticities); Household Behavior – Supply of Factors of Production (Consumer’s Choice in a Model of Fixed Endowments, Comparative Statics, Demand and Excess Demand, Supply of Labor, Intertemporal Choice – Consumption and Savings); Welfare Measurement (Revealed Preference and Consumer Surplus); General Equilibrium in a Consumption Economy (Market Demand, General Equilibrium in a Consumption Economy: the Market Solution, the Central Planner solution, Pareto efficiency, Government Intervention).

Macroeconomics I V. Popov, K. Sossunov This is the first and introductory part of the required macroeconomic sequence at NES. The goal of this module, in combination with the second module, is to introduce the students to all major issues of macroeconomics and semi-formal modeling of macroeconomic processes. The first two modules are called to develop intuition and substantive understanding of macroeconomics, which will later be formalized in the subsequent modules. The first module will focus on macroeconomics of the long run, starting with economic growth and accumulation of capital, as well as the neo-classical description of macroeconomic equilibrium for a given amount of capital. Short-run fluctuations will be discussed in the second module.

Probability Theory S. Aivazian, P. Katyshev This course is designed to introduce students to the statistical tools essential for other courses such as Econometrics and Applied Multivariate Statistical Analysis. The course starts with the basic notions of probability theory: probability space, random variables and models of probability distribution laws. Next, the main results of probability theory are discussed: probability distribution law of random variables which are functions of known random variables; Tchebychev’s inequality; statistical stability of sampling characteristics; the normal distribution and the central limit theorem. The course goes on to consider Markov chains, the basics of statistical description and statistical estimation of parameters. The final topics are the statistical testing of hypotheses and elements of regression and variance analysis.

Mathematics for Economists I V. Polterovich, et al. This course introduces students to the mathematical methods widely used in economics and quantitative social science. The topics covered include: 1) introduction to topology; 2) mathematical programming; 3) Lagrange’s method; 4) convex sets and convex functions; 5) convex programming, Kuhn-Tucker theorem; 6) the envelope theorem; 7) quasi-concave programming; 8) linear programming; 9) duality; 10) discrete programming.

English O. Marenkina, et al. See the description of English language instruction in the corresponding section.

Second Year Courses Macroeconomics VI N. Volchkova This is the final part of the required macroeconomic sequence at NES. The goal of the sixth module is to utilize the methodology and knowledge obtained in the previous five modules and consider questions relevant for policy makers. Specifically, the course will cover fiscal and monetary policy in closed and open economies from theoretical, empirical, and historical perspectives. The issues of policy are highly controversial, and most of the material will be based

NES Annual Report 2005-2006 40 on recent research, which is far from being the last word in the field. Hence, a great deal of creativity and open mindedness on the part of the course participants is expected.

Econometrics IV S. Anatolyev This course is a continuation of Econometrics III. This time we will concentrate on estimation and inference in nonlinear models. Beside the Nonlinear Least Squares estimation that we have already studied, the methods will include Maximum Likelihood and Generalized Method of Moments, the two leading contemporary econometric techniques. Also, we will devote a few lectures to learn how to handle panel data. The assigned exercises will include regular problems as well as computer tasks based on GAUSS.

Recursive Macroeconomics I A. Deviatov This is an advanced elective two-module sequence in macroeconomics. The course objective is twofold. First, students will be familiarized with the basics of dynamic programming including some of numerical techniques for solution of dynamic programming problems. Second, the tools will be applied to a wide range of recursive macroeconomic models. We shall address such issues as unemployment, long-term growth, asset pricing, and other selected topics to cover the most important developments in the field.

Growth and Development O. Moav In the first part the course would focus on the neo-classical growth model, over-lapping generations growth model, and models of endogenous investment in research and development. The second part of the course would concentrate on the study of interrelations between income inequality and economic growth, focusing on saving rates, investment in human capital, intergenerational mobility, fertility, and the effect of technology on the return to education and ability. The final part of the course would offer explanations for the long run transition from Malthusian stagnation to modern growth.

Labor Economics I R. Gronau This course covers the main topics in labor economics. Topics to be discussed include the basic model of labor supply, non-linear price lines, the allocation of non-market time, labor supply over the life-cycle and the business cycle, the quality of labor, investment in schooling, on-the-job training, the gender wage difference, and specific human capital and labor turnover.

Transition V. Popov The overall aim of this course is to understand the processes of transition from a socialist, centrally planned economy to a capitalist mixed market economy, using the Russian economy as the primary example. Extensive comparisons will be made with the experience of other economies in transition. After surveying the economics of transition in the perspective of comparative economic systems, we shall look at Soviet economic history and at basic features of the Soviet centrally planned economy. We shall then examine current transition problems, such as macroeconomic stabilization and industrial policy, privatization strategy and experience, emerging banking and financial systems.

Foundations of Finance A.Goriaev This course provides introduction to the analysis of financial markets. We start with motivation for the existence of financial markets and a brief review of the history of financial development. Then, we discuss the specifics of different types of financial instruments, markets, and intermediaries. We continue with the analysis of investments under certainty, with main applications in the fixed income valuation and capital budgeting. Finally, we browse through a range of more advanced topics, including arbitrage pricing and market efficiency. This course provides the basic preparation for the more specialized finance courses, especially for students lacking real-world finance experience.

Natural Resources O. Eismont The main goal of the course is to give students the notion of the economic theory which analyzes processes of natural resources extraction, pricing, and consumption, of the role that exhaustible natural resources play in economic development of modern societies. It is assumed that the students are familiar with the graduate course in macroeconomics.

NES Annual Report 2005-2006 41 Theory of Contracts A. Bremzen This course is designed to expose the students to the basic concepts and most important issues in the modern contract theory. Contract theory comprises a number of different approaches and topics, enough for a yearlong course, and since it is only taught for one module at NES this year, some important topics will inevitably be omitted and interested students are advised to study available literature on their own, in particular, papers mentioned below (most of which will not be discussed in class). Subjects such as property rights theory, moral hazard in teams, multi-tasking, career concerns, incomplete contracts, economics of organizations, and, time permitting, some auction theory, will be covered. Luckily some of the material usually covered in Contract Theory class (such as mechanism design and two sided matching) was already covered in other classes such as Micro V and Game Theory. There are no prerequisites for Contract Theory except the basic course of Microeconomic Theory. The Contract Theory course is itself a prerequisite for the Corporate Finance course offered later in the year.

Meetings of Research Groups The purpose of these meetings is to help students develop topics for their master’s theses and to provide an opportunity to present work in progress. In addition, the workshops give students practice at making presentations. Workshops also stress the technical aspects of research including surveys of the literature, the proper use of references, writing abstracts, the organization of papers, etc.

Module II: October 31 – December 25, 2005

First Year Courses Microeconomics II G. Kosenok This course is a continuation of Microeconomics I. Topics for discussion include the theory of the firm; partial equilibrium analysis; theories of monopolistic and oligopolistic markets.

Macroeconomics II K. Sossunov This is the second-part of a three-part intermediate sequence. Topics covered in the course are the following: 1. Determination of the aggregate demand. IS – LM model in a closed and in an open economy. Effects of various macroeconomic policies in the IS – LM framework. 2. Inflation and unemployment. Philips curve. Dynamic interaction of aggregate demand and aggregate supply. Adaptive and rational expectations. 3. Long-term growth and business cycles. Solow growth model. New Keynesian and New Classical business cycle theories.

Mathematical Statistics S. Aivazian, A. Peresetsky (See description of Probability Theory from Module I)

Mathematics for Economists II V. Bulavsky, et al. (See description given in Module I)

English O. Marenkina, et al.

Second Year Courses Theory of Economic Reform V. Polterovich The course is an introduction into new and quickly developing discipline that studied reforms of economic institutions. The following main topics are covered: 1. Main problems and evolution of the Theory of Reform. 2. The Political Economy of Delayed Reform. 3. Transformational Recession and Disorganization. 4. Rent Seeking. and Institutional Traps. 5. Strategies of Reforms (shock therapy and gradualism, reform sequencing). 6. Price Liberalization and Stabilization. 6. Privatization and Restructuring. 7. Reforming Labor Markets. 8. Reforms of the Bank System. The course uses a mixture of macro and microeconomic models.

Russian Financial System E. Gurvich The objective of the course is to make students familiar with the application of general principles of fiscal and monetary policy in modern Russia, to discuss problems that arise in the course of their implementation and plans to address these problems. The course overviews the composition of Russian budgetary system, the roles of principal actors of budgetary process, quality criteria for fiscal policy, debt policy, and instruments, used by the Central Bank in different periods and other similar problems.

NES Annual Report 2005-2006 42 Industrial Organization I O. Eismont This course focuses on the organization and functioning of consumer markets. It includes a discussion of the behavior of firms on markets and examines firms as sellers and buyers of goods. During the last 20 years, methods of contemporary microeconomics and game theory began to analyze industrial organization and, as a result, a theory of industrial organization was founded. In this course, we focus on the behavior of the monopolist on consumer markets, and solutions of the monopolist in price-making, choosing of sets of products, quality, advertising, technical innovations and so on.

Recursive Macroeconomics II A. Deviatov (See description given in Module I)

Applied Time Series Econometrics S. Anatolyev The course is devoted to the modern applied time series analysis. The emphasis will be put both on concrete classes of time series models and principles of modeling. We will review various model selection procedures. After that we will study popular models of the conditional mean dynamics such as linear ARs and VARs as well as nonlinear structures like bilinear and threshold models, chaos and the like. We will also review such issues as stationarity vs. integratedness, unit roots and cointegration. Then we will turn to modeling of the conditional variance as represented by the class of ARCH models. Finally, as time permits, we will study some special methods like structural breaks, bootstrapping, forecasting, outliers, etc., and more rare models like those with Markov switching, or those for irregularly spaced data.

Political Economy K. Sonin, E. Zhuravskaya The course in Political Economy tries to answer the following and related questions: How do bad institutions appear? Why are they so stable? Why do democracies sometimes carry out bad economic policies? Why do not politicians fulfill their promises? Why is inequality so dangerous? Why was the Weimar republic so short-lived? Cаn decentralization be inefficient?

Investment Theory A. Goriaev This course covers foundations of modern financial economics with respect to the problems of choice under uncertainty. We study the discrete-time models of asset pricing under the assumptions of competitive markets and symmetric information, with application to performance evaluation and option pricing. Besides, particular attention will be given to the portfolio management. Although the course is primarily theoretical, we also discuss the empirical relevance and practical applicability of the main results.

English O. Marenkina, et al.

Meetings of Research Groups (See description from Module I)

Module III: January 10 – March 5, 2006

First Year Courses Microeconomics III S. Guriev, A. Tonis The course covers the following topics: 1. Public goods. (Main features of public goods: non- excludability, non-rivalry. Inefficiency of private provision of public goods. Lindahl tax: a way to achieve efficiency. Mechanisms revealing demand for public goods). 2. Externalities. (Examples of externalities; production and consumption externalities. Market failure caused by externalities. Solution to externalities problem: Pigovian taxes, externality markets. Property rights and the Coase theorem. Compensation mechanism). 3. Preferences, consumer choice, and demand. (Preference relations. Choice rules. Weak axiom of revealed preference. Utility function. Strong axiom of revealed preference. Consumer demand. Aggregating consumer demand). 4. Production. (Production sets. Profit maximization and cost minimization in the case of multiple inputs and outputs. Aggregate production). 5. Choice under uncertainty. (Expected utility theory. Risk aversion. Risk-return trade-off. Other theories of choice under risk and uncertainty). 6. Public Choice Theory. (Social welfare criteria. Efficiency of public decision making. Arrow impossibility theorem. Majority voting. Single-peaked preferences. Rent-seeking and rent dissipation).

NES Annual Report 2005-2006 43 Macroeconomics III V. Polterovich, N. Volchkova This course is the first part of the obligatory graduate coursework for Masters degree. Primary course objective – to master common models macroeconomics and elements of monetary theory. Topics covered under this course are as follows: Solow model; Ramsey model; overlapping generations model.

Games I K. Sonin, A. Bremzen The purpose of the course is to discuss the basic concepts and results of modern game theory which are increasingly used in economics. The larger part of the course is devoted to noncooperative game theory and its main concept — Nash equilibrium. Different modifications of the concept are also discussed. The second part of the course deals with cooperative game theory and with concepts such as the core and Shapley’s vector. Topics discussed include the following: expected utility theory; extensive and normal form games; solution concepts including dominant strategy; Nash, perfect and proper equilibria; repeated games; games with communication; Bayesian games; bargaining; cooperative game theory and the core; the Shapley value; social choice; Groves mechanisms.

Econometrics I A. Peresetsky This course is designed to be the first course in econometric theory. We will cover the standard linear regression model (in matrix form) with all the estimation and testing results. In addition, we shall cover GLS, heteroscedasticity, serial correlation and forecasting. The treatment will be rigorous with proofs of the stated theorems.

English O. Marenkina, et al.

Second Year Courses Public Economics I V. Makarov Aim of the course is to familiarize students with basic notions, models and results of Public Economics. The course helps audience to give thought to the role of the state in economy, to the economic sectors, which needed in a state intervention and on the contrary, to which this intervention can do more harm than good.

Industrial Organization II G. Kosenok This course is dealing with a theoretical analysis of IO. Topics to be covered under this course include Monopoly: Durable Goods; Collusion; Advertising; Price Discrimination and Quality Selection.

International Trade V. Polterovich The goal of this course is to expose students to the issues raised by monetary aspects of international economics and to try to introduce some order into the confused discussion that exists in the literature. It relies heavily on contributions from the “Minnesota School” as these models seem the most explicit and it is easier to understand what their key assumptions are and what drives the results.

Auctions K. Sonin The course combines recent advances in economic theory with the evidence drawn from real auctions around the world. Theoretical topics includes the mechanism design approach, revenue equivalence theorem, common-value auctions, linkage principle, collusion rings and market sharing, and foundations of implementation theory. Evidence discussed in the course includes experience of spectrum auctions in the U.S., 3G auctions in Europe, and fishery quota auctions in Russia.

Regulation O. Eismont Covered topics are: natural monopolies and their regulation, incentive regulation, capture theory and economic theory, practical implementation of economic regulation and deregulation.

Corporate Finance I S. Stepanov The objective of this course is to discuss the most important financial decisions of a firm with a focus on the agency cost and asymmetric information issues. The core of the course is the analysis of capital budgeting and capital structure decisions. The capital budgeting topics will cover various techniques of evaluating and comparing projects. The capital structure topics will examine the choice of sources of finance for a firm; in particular, the choice between debt and equity financing. Payout (dividend) policies will be discussed as well.

NES Annual Report 2005-2006 44 Topics in Econometrics S. Anatolyev The course features several interesting and important issues of the modern econometric theory. First, we will study nonparametric estimation, which combines a strong applied context with a delicate asymptotic theory. Second, we will see the beauty and elegance of GMM ideas when manipulating moment conditions and constructing optimal instruments. Third, we will focus on the models where a functional form or distributional assumptions happen to be incorrect, and a related issue of model selection problem. Fourth, we will study some alternative approaches to GMM estimation that are motivated by dissatisfaction with small sample properties of GMM. Finally, we will get acquainted with a more delicate asymptotic theory than we got accustomed to see and use, and look at some applications of this unconventional asymptotic theory.

Russia in the Global Environment: Past and Present L. Fridman The main theme of the course is comparative analysis of levels, rates and factors of economic development of large countries during the last centuries (for some countries and regions/sub regions during the second millennium). The emphasis is made on peculiarities of the genesis of Modern Economic Growth, the formation of industrial and post-industrial civilizations in various groups of countries. Special attention is given to the interaction natural, material, social and spiritual (cultural) determinants of this economic development. The course is based on many computation and retrospective estimates (some of them are made by the authors of the course). All that makes it possible to verify a number of theoretical models and concepts of economic development.

Monetary Theory A. Deviatov The aim of the course is to introduce students to the different approaches to incorporating money into dynamic general equilibrium framework. The course will also cover some topics in monetary policy.

Econometrics of Financial Markets A. Goriaev In this course, we consider applications of econometric techniques to the analysis of financial markets, with a special emphasis on the interaction between economic theories, econometric techniques, and empirical results. In the first part of the course, we discuss empirical tests of market efficiency. We start with the analysis of the predictability of asset returns and the speed of stock price adjustment in response to company news announcements. Then, we study the possible applications and validity of the CAPM and multi-factor asset pricing models, with particular attention to the return anomalies (e.g., the size and book-to-market effects). The second part of the course is devoted to the evaluation of portfolio performance of financial intermediaries (e.g., mutual funds) and studies of investor behavior (related to the behavioral finance models). In particular, we analyze performance persistence, impact of the survivorship bias, dynamic strategies, and gaming behavior in the mutual fund industry. Investment Theory is a prerequisite for this course.

History of Economic Thought I V. Avtonomov, et al. The purpose of the course is to give students an overview of the growth and development of the economic thought. Studying the history of economic theory is helpful in understanding the predecessors of the modern economic problems and the logic of the evolution of economics. Topics include economic thought in antiquity and the middle ages; the rise of mercantilism; land as the principle source of economic wealth (Quennais and the physiocrats); the formation of the classical school (Smith and Ricardo); Malthus; Mill; alternatives to the classical school (e.g. the socialists and Marxists).

English O. Marenkina, et al.

Meetings of Research Groups (See description given in Module I)

Module IV: March 6 – May 3, 2006

First Year Courses Microeconomics IV G. Kosenok, L. Polishchuk This course continues to analyze asymmetric information and public good provision. The latter includes the theory of public choice. The course considers methods of revelation by initiative of uninformed side, and the analysis covers both hidden characteristics and hidden actions. Basic concepts and methods of mechanism design are introduced in problems with asymmetric

NES Annual Report 2005-2006 45 information, and the developed theory is applied to models of public good provision. Basic concepts and results of the theory of aggregation of personal preferences are presented in problems of social choice.

Macroeconomics IV A. Deviatov The goal of the third module was to introduce the basic methodological tools for analyzing dynamic models commonly used in macroeconomics. In the fourth module, we will use this methodology to analyze components of the aggregate demand (such as consumption and investment) and the behavior of financial markets in greater detail. To an extent, most of the theories studied here should be familiar already from the traditional Ramsey-Cass model. Hence, we will concentrate on their modern extensions and empirical relevance. Particular emphasis will be made on studying decisions made under uncertainty.

Games II A. Bremzen (See description given in Module III)

Econometrics II P. Katyshev The topics covered in this course include models with lagged variables and time series, models with limited dependent variables, models for panel data, and simultaneous equations.

English O. Marenkina, et al.

Second Year Courses Corporate Finance II S. Stepanov This course is complementary to Corporate Finance I. Corp. Fin. I and Contract Theory are prerequisites for Corp. Fin. II. Corp. Fin. II will focus on the issues of financial contracting and corporate control. It will discuss the ways in which financial contracts (financial structure) and control mechanisms (i.e. corporate governance) should be designed so as to mitigate the conflicts between insiders and outsiders in a firm and maximize the overall efficiency of a firm’s decisions. We will also look at how the market for corporate control (takeovers) helps (or fails) to ensure that firms are governed by the most able managers (or controlling owners) and that their incentives are best aligned with shareholders’ interests. Furthermore, we will discuss why ownership structures of firms, corporate governance mechanisms and overall financial development substantially differ across countries, focusing on the role of law and political economy explanations. We will finally discuss the problems of corporate governance in transition and developing economies with a focus on the case of Russia.

Economics of Corruption M. Levin This course ties together themes from subjects discussed in courses covering microeconomics, game theory, and institutions. Three main problems are considered: rent-seeking behavior, corruption as economic and political phenomena, and the relationships between rent-seeking, corruption and shadow economies. Attention focuses on questions of institutional descriptions of corruption, statistical and econometric analysis of the influence on the economic system, models of rent-seeking, the shadow economy, and the Russian economy and corruption.

Public Economics II L. Polishchuk The course covers social choice theory — instructing a framework for the analysis of problems of social choice. It then analyses some common public choice problems. Topics dealt with include property rights and externalities; congestion; public goods, local public goods and fiscal federalism; voting mechanisms.

Trade Policy I K. Yudaeva, N. Volchkova, D. Tarr This course is designed to provide students with the ability to conduct and evaluate economic analyses of policy issues relating to international trade. The course begins with a discussion of the reasons why countries trade. It proceeds to a discussion of the arguments for and against protection and managed trade. We study the effects of different trade policy instruments. Then we discuss the issues that arise in the design of policy for declining, import-competing industries (e.g., income distribution, unemployment), and for dynamic, export industries (e.g., strategic policies, dynamic externalities, capital market imperfections). The special attention is paid to issues of trade policy and economic growth perspectives and political economy of trade protection. In each case the theory is illustrated by industry case studies. The last part of the course deals with the issues of

NES Annual Report 2005-2006 46 trade agreements. We analyze the rationale for a world trade organization, custom unions and actual experience, and whether preferential trade agreements undermine or promote the multilateral trading system?

Labor Economics II I. Denisova This course covers the main topics in labor economics. Topics to be discussed include, the nature of labor market analyses, labor market flows, developments in selected industrial countries, the basic static labor supply model, home production and time allocation models, non-linear budget constraints, family models, human capital and long-run labor supply, occupational and educational choice, wages and earnings, labor demand, unemployment, discrimination and segmentation, and labor markets in transitional economies.

Open Macroeconomics K. Sosunov The course covers theoretical topics of real and nominal exchange rate and current account fundamentals behavior under perfect capital mobility various price-setting rules (flexible prices and nominal rigidities). The second part gives a quick review of policy issues, which attract a substantial attention from both economists and policymakers in the recent years. These include theory and evidence of exchange rate based stabilizations, currency crises, sovereign debt management, and reform of the international financial system. The course ends with the discussion of exchange rate determination and macroeconomic policy in transition economies.

Behavioral Economics A. Suvorov “Behavioral Economics” (or “Psychology and Economics”) is a new field, not an easy one to define. What unifies the different research programs associated with it is an attempt to bring psychological realism to economic analysis. Some papers document departures of the actual human behavior from the one predicted by mainstream economic models. Others incorporate more realistic, psychologically grounded assumptions into economic models to investigate their implications. Yet others are interested in explaining seemingly irrational behavior using tools of economics and game theory with some minor departures from conventional assumptions. The course will be somewhat eclectic. We shall both discuss theoretical models and look at many empirical (mostly experimental) results. There is no textbook. Copies of some papers and book chapters will be distributed in class.

Financial Risk Management A. Goriaev This course covers the modern techniques of financial risk management, with a stress on real life examples and case studies. First, we review the financial derivatives and standard hedging techniques. Then, we consider market risk, concentrating on VaR (value-at-risk) measurement and interpretation. In addition, we look at stress testing as well as several other market risk measures. We continue with liquidity risk, credit risk, and operational risk. Finally, we discuss several applied issues, such as specifics of risk management in banking and in the emerging markets. The course on Investment Theory is a prerequisite for Risk Management.

Empirical IO G. Kosenok The course is dealing with an empirical analysis of IO. It includes 14 lectures and 6 seminars. The final grade will be based on 2 problem sets (20%) and the final written exam (80%). Problem sets will include both theoretical and practical questions and they will be distributed biweekly starting from the second week. The knowledge of IO and Applied Econometrics is preferred but is not required.

English (for intermediate level groups) O. Marenkina, et al.

Meetings of Research Groups (See description given in Module I)

Module V: May 10 – July 3, 2006

First Year Courses Microeconomics V A. Suvorov The course is a part of the advanced graduate sequence in Microeconomic Theory. This module concentrates on models with asymmetric information and unobservable actions, including adverse selection, screening, signaling, moral hazard, and mechanism design.

NES Annual Report 2005-2006 47 Macroeconomics V K. Styrin (Main textbook: Advanced Macroeconomics Romer, D.)

Econometrics III S. Anatolyev The course serves as an introduction to principles of contemporary art of econometric estimation and inference, when applied in both cross-sectional and time-series setting. Motivated by dissatisfaction with exact inference, we consider competing alternatives: asymptotic approximation and bootstrap. Then, after having reviewed certain important econometric notions, we will focus on estimation and inference in a linear mean regression. Then we will study a nonlinear regression model and associated methods. Finally, we will learn about a nonparametric regression analysis that combines a strong applied context with a delicate asymptotic theory. Emphasis will be put on conceptual content rather than mathematical sophistication, although the latter is sometimes unavoidable.

Comparative Economic Systems and Centrally Planned Economies V. Popov After analyzing the major types of economic systems (market and centrally planned economies based on state, collective and private property), we examine the most important turning points in XX century Russian/Soviet economic history (1917 Revolutions, War Communism, NEP, the rise of the Command Economy in the 1930s). Soviet statistics and official and alternative estimates of Soviet economic growth are discussed. Basic features of the Soviet-type centrally planned economy (CPE) are examined; structural inefficiencies of the CPE and its actual mechanisms of operation are analyzed. The course ends with the overview of Gorbachev's economic reforms (1985-91) and the analysis of monetary overhang that emerged during the late 1980s. “Economics of Transition” offered to second year students is the logical continuation of this course.

English O. Marenkina, et al.

Second Year Courses Advanced Topics in Finance O. Grishchenko The goal of the course is two-fold: (1) for students to make a transition from coursework toward research and (2) for students to build up knowledge of (and possibly consider doing) empirical finance research. Though this course covers applied work in empirical finance, the course will require students to delve into the array of tools commonly used in financial economics.

Advanced Asset Pricing O. Grishchenko This course introduces students to advanced techniques for modeling asset prices in a continuous- time setting. This encompasses no-arbitrage characterization of asset prices; no-arbitrage pricing of derivative securities; dynamic portfolio and consumption choice under uncertainty; and equilibrium characterization of asset prices. Equipped with techniques (such as applications of Ito's lemma, Girsanov's theorem, and Feynman-Kac theorem, dynamic programming and martingale methods, etc), students are invited to develop a deeper understanding of some important asset pricing models in the continuous-time framework, both by reading the original papers and by working through problem sets designed to enhance the students' understanding of those models and to illustrate the application of the continuous-time methods.

Trade Policy II K. Yudaeva, N. Volchkova, D. Tarr (See description given in Module IV)

History of Economic Thought V. Avtonomov, et al. (See description given in Module III)

English (for intermediate level groups) O. Marenkina, et al.

Meetings of Research Groups (See description given in Module I)

English Language Instruction

NES places great emphasis on the acquisition of English language skills. English is a compulsory discipline for the first year students. Several courses are offered for students to acquire and master their study skills necessary in the School as well as to have the necessary background to further practice and extension of the target language, i.e. to learn to read efficiently scientific literature in Economics; to listen to lectures in

NES Annual Report 2005-2006 48 English and take adequate notes; to write papers, reports essays, C.V., business letters; to give oral presentations on research subjects and participate in discussions; to develop speaking skills for social contacts. Students are encouraged to use the variety of language laboratory facilities at NES for their self- study. Besides, considerable attention is focused on tutorials with the students as an effective way of individual instructions.

The courses offered this academic year as part of the academic program included:

In-Session English Course (6 academic hours per week). According to their language proficiency, the students were divided into two sub-groups: Upper-Intermediate and Intermediate. Between 135 and 165 academic hours of English instruction (apart from tutorials) were offered to each student.

• Upper-Intermediate students:

o Academic Writing (75 academic hours: 3 ac.hs. per week) o Giving Oral Presentations (60 academic hours: 3 ac.hs. per week)

• Intermediate students:

o General English (90 academic hours: 3 ac.hs. per week) o Business English (75 academic hours: 3 ac.hs. per week)

The students were supposed to take a mid-term and a final in-class exam (written or oral) at the end of each course.

In their second year the Intermediate students may continue their studies, attending elective courses in Academic Writing and Giving Oral Presentations.

In addition to the regular in-session course, a special course (36 academic hours) was offered for student applicants to prepare them for the NES TOEFL like English entrance examination. This course was offered in May – June.

The NES English Language Dept. is headed by Ms. Olesya Marenkina and this year employed 4 tutors and one assistant.

NES Annual Report 2005-2006 49 Appendix 2: Faculty Research Profiles

STANISLAV A. ANATOLYEV

Articles and notes in refereed journals: Anatolyev, Stanislav (2006) “Optimal instruments in time series: a survey”, Journal of Economic Surveys, forthcoming Anatolyev, Stanislav and Dmitry Shakin (2006) “Trade intensity in the Russian stock market: dynamics, distribution and determinants”, Applied Financial Economics, forthcoming Anatolyev, Stanislav (2006) “Kernel estimation under linear-exponential loss”, Economics Letters, Vol. 91, No. 1, pp. 39–43 Anatolyev, Stanislav (2005) “GMM, GEL, serial correlation and asymptotic bias”, Econometrica, Vol. 73, No. 3, pp. 983–1002 Anatolyev, Stanislav and Alexander Gerko (2005) “A trading approach to testing for predictability”, Journal of Business and Economic Statistics, forthcoming Anatolyev, Stanislav and Grigory Kosenok (2005) “An alternative to maximum likelihood based on spacings”, Econometric Theory, Vol. 21, No. 2, pp. 472–476 Anatolyev, Stanislav (2004) “Inference when a nuisance parameter is weakly identified under the null hypothesis”, Economics Letters, Vol. 84, No. 2, pp. 245–254 Anatolyev, Stanislav (2003) “The form of the optimal nonlinear instrument for multiperiod conditional moment restrictions”, Econometric Theory, Vol. 19, No. 4, pp. 602−609 Anatolyev, Stanislav and Sergey Korepanov (2003) “The term structure of Russian interest rates”, Applied Economics Letters, Vol. 10, No. 13, pp. 867−870 Anatolyev, Stanislav and Andrey Vasnev (2002) “Markov chain approximation in bootstrapping autoregressions”, Economics Bulletin, Vol. 3, No. 19, pp. 1−8 Anatolyev, Stanislav (2002) “Electoral behavior of US counties: a panel data approach”, Economics Bulletin, Vol. 3, No. 9, pp. 1–10 Anatolyev, Stanislav (1999) “Nonparametric estimation of nonlinear rational expectations models”, Economics Letters, Vol. 62, No. 1, pp. 1–6

Problems and solutions in refereed journals: Anatolyev, Stanislav (2003) “Redundancy of lagged regressors in a conditionally heteroskedastic time series regression”, Econometric Theory, Vol. 19, No. 1, Problem 03.1.2, pp. 225–226 Anatolyev, Stanislav (2002, 2003) “Autoregression and redundant instruments”, Econometric Theory, Vol. 18, No. 6, Problem 02.6.2, p. 1461; Vol. 19, No. 6, Solution 02.6.2, pp. 1197–1198 Anatolyev, Stanislav (2002, 2003) “Durbin–Watson statistic and random individual effects”, Econometric Theory, Vol. 18, No. 5, Problem 02.5.1, pp. 1273–1274; Vol. 19, No. 5, Solution 02.5.2, pp. 882–883 Anatolyev, Stanislav (2001) “Serial correlation and asymptotic variance”, Econometric Theory, Vol. 17, No. 5, Problem 01.5.3, p. 1026 Anatolyev, Stanislav (2001, 2002) “Conditional and unconditional correlatedness and heteroskedasticity”, Econometric Theory, Vol. 17, No. 3, Problem 01.3.2, p. 669; Vol. 18, No. 3, Solution 01.3.2, pp. 820–821

Working papers: “A unifying view of some predictability tests”, working paper WP/2006/052, New Economic School, 2006 “Model complexity and model performance”, with Andrey Shabalin, working paper WP/2006/056, New Economic School, 2006 “Modeling, estimation, inference and prediction under linear-exponential loss”, working paper, New Economic School, 2005 “A ten-year retrospection of the behavior of Russian stock returns”, BOFIT working paper 9/2005, Bank of Finland, 2005 “Dynamics and predictability in Russian financial markets”, with Alexander Gerko, Dmitry Shakin and Olga Kryukovskaya, working paper WP/2004/042, New Economic School, 2004 “Three essays on econometrics of moment conditions in time series”, working paper WP/2004/041, New Economic School, 2004 “Capital expenditures financing in Russia”, with Galina Ovtcharova, working paper WP/2001/030, New Economic School, 2001

NES Annual Report 2005-2006 50 “Instrumental variables estimation of heteroskedastic linear models using all lags of instruments”, with Kenneth West and Ka-fu Wong, SSRI working paper 2001-20, University of Wisconsin- Madison, 2001

Work in progress: “Retrospection of the behavior of Russian stock returns during the last decade”, in preparation “Retrospection and monitoring of time series predictability”, in preparation “A unifying view of some predictability tests”, in preparation “Model complexity and model performance”, with Andrey Shabalin, submitted “Modeling, estimation, inference and prediction under linear-exponential loss”, submitted “Optimal instruments in time series: a survey”, submitted “Trade intensity in the Russian stock market: dynamics, distribution, and determinants”, with Dmitry Shakin, submitted “Instrumental variables estimation of heteroskedastic linear models using all lags of instruments”, with Kenneth West and Ka-fu Wong, under revision “Method-of-moments estimation and choice of instruments”, in preparation “Robustness of residual-based bootstrap to composition of serially correlated errors”, submitted “Approximately optimal instrument for multiperiod conditional moment restrictions”, under revision “Conditional serial correlation consistent modeling of conditional heteroskedasticity”, under revision

Teaching materials: “Intermediate and advanced econometrics: problems and solutions”, New Economic School, first edition, 2002; second edition, 2005 “Lecture notes: advanced econometrics” (in Russian), New Economic School, 2003 “Lecture notes: intermediate econometrics” (in Russian), New Economic School, 2002, second edition, 2003

Presentations at international conferences: Econometric Society European meeting, University of Vienna, Austria, August 24–28, 2006 European Economic Association annual congress, University of Vienna, Austria, August 24–28, 2006 2006 North American Summer Meeting of Econometric Society, University of Minnesota, June 22–25, 2006 XVIII New Economic School research conference, Moscow, November 3–5, 2005 9th Econometric Society World Congress, London, UK, August 18–25, 2005 XVI New Economic School research conference, Moscow, October 14–16, 2004 Econometric Society European meeting, University Carlos III–Madrid, Leganés, Spain, August 19–24, 2004 XIV New Economic School research conference, Moscow, October 9–11, 2003 European Economic Association annual congress, Stockholm University, Sweden, August 20–24, 2003 North American summer meeting of the Econometric Society, Kellogg School of Management, Northwestern University, June 26–29, 2003 VIII Spring Meeting of young economists, Catholic University of Leuven, Belgium, April 3–5, 2003 New Economic School Anniversary conference, Moscow, December 19–21, 2002 XII New Economic School research conference, Moscow, October 3–5, 2002 Econometric Study Group annual conference, University of Bristol, United Kingdom, July 18–20, 2002 VII Spring Meeting of young economists, University of Paris 1 Panthéon–Sorbonne, France, April 18–20, 2002 X New Economic School research conference, Moscow, November 1–3, 2001 North American summer meeting of the Econometric Society, University of Maryland, June 21– 24, 2001

Courses taught Courses taught at New Economic School: Econometrics 4 (Advanced Master’s Econometrics), 2000, 2001, 2002, 2003, 2004, 2005 Econometrics 3 (Intermediate Master’s Econometrics), 1998, 1999, 2001, 2002, 2003, 2004, 2005, 2006

NES Annual Report 2005-2006 51 Applied Time Series Econometrics, 2001, 2002, 2002, 2003, 2004, 2005 Advanced Topics in Econometrics, 2001, 2003, 2004, 2005, 2006 Topics in Time-Series Econometrics, 2002 Topics in Cross-Sectional Econometrics, 2001 Courses taught elsewhere: Econometrics and its Applications to Policy Analysis: Applied Time Series Analysis, EEA– EERC–INTAS Summer School, Kyiv, Ukraine, 2005 Introduction to Time Series Econometrics, NES and Institute for Economics and Finance Outreach Summer School, Almaty, Kazakhstan, 2002 Statistics and Application of Mathematical Methods in Economics, Center for Economic Research and World Bank, Tashkent, Uzbekistan, 2002 Macroeconomic Modeling and Forecasting, Ministry of Economic Development and Trade, Moscow, 2001 Economic Statistics and Econometrics, Graduate School of Business Administration, Moscow State University, 2001 Econometrics III: Panel Data Analysis, EERC–Russia Methodological Seminar, Moscow, 2001 Econometrics II: Time Series Analysis, EERC–Russia Methodological Seminar, Moscow, 2001 Econometrics I: Estimation and Inference in Econometrics, EERC–Russia Methodological Seminar, Moscow, 2000 Applied Econometrics, EERC Summer School, Issyk-Kul, Kyrgyz Republic, 2000 International Trade and Finance, Moscow International University, 1994–1995 Short courses: Causality in Panel Data, Institute for Economies in Transition, Moscow, 2001 Time Series Econometrics (with Mark Taylor), World Bank and Higher School of Economics, Moscow, 2000

Grants and Honors Access Industries Assistant Professor of Economics, Access Industries, 2003–2005 Swedish Professorship Award, Economics Education and Research Consortium–Russia and Eurasia Foundation, 2000–2003 Travel grant, 9th Econometric Society World Congress, London, 2005 Travel grants, VIIth Spring Meeting of Young Economists, Paris, 2002, and VIIIth Spring Meeting of Young Economists, Leuven, 2003 New Economic School supplementary grant, 1996–1997 Bullis Scholarship, University of Wisconsin, Department of Economics, 1995–1996 Open Society Institute grant, 1995–1996 Cum Laude graduation, New Economic School, Moscow, 1995

Membership in professional associations: Econometric Society, European Economic Association, American Statistical Association

Referee service: Econometric Society European Meetings 2006 National Science Foundation Econometrica, Econometric Theory (5 times), Journal of Econometrics, Econometric Reviews, Journal of American Statistical Association, Journal of Money, Credit, and Banking (4 times), Applied Economics, Global Finance Journal, Journal of Empirical Finance, Economics Bulletin, Statistica Neerlandica, Finnish Economic Papers, Ekonomika i Matematicheskie Metody (2 times)

ANDREI BREMZEN

Working papers “Sequential Auctions with Entry Deterrence”. “Bargain or Post the Price?” “Auction Rules as a Commitment Device”. “Electoral Mandate and Voting Behavior: Evidence from Russian State Duma” (with Georgy Egorov and Dmitry Shakin). “How Does Electoral Threshold Affect Representation?” (with Georgy Egorov and Dmitry Shakin).

NES Annual Report 2005-2006 52 Research in Progress “Do Employers Send Signal of Task Difficulty to Employees? Experimental Evidence” (with Akhmed Akhmedov and Anton Suvorov). “A Mechanism for the Endowment Effect” (with Anton Souvorov)

Courses Taught New Economic School, Master program courses: Contract theory, Game theory, Industrial Organization II, Microeconomics V.

ALEXEI GORIAEV

Publications in journals “Yet another look at mutual fund tournaments” (with Theo Nijman and Bas Werker), Journal of Empirical Finance 12(1), January 2005, 127-137. “Share repurchases are not valued yet” (with Peter Roosenboom and Arno van den Beemt), Economisch Statistiche Berichten, February 23, 2001, 184-185 (in Dutch)

Book chapters “The relative impact of different classification schemes on mutual fund flows” forthcoming in Gregoriu, G., ed. “Diversification and Portfolio Management of Mutual Funds” Palgrave- MacMillan

Working Papers “The dynamics of the impact of past performance on mutual fund flows” (with Theo Nijman and Bas Werker), CentER Discussion Paper Series 2002-2. “Mutual fund tournament: Risk taking incentives induced by ranking objectives” (with Frederic Palomino, and Andrea Prat), CentER Discussion Paper Series 2000-94. “Risk factors in the Russian stock market” “Should emerging market investors diversify abroad despite superior domestic performance?” (with Sergei Prikhodko) “Is political risk company-specific? The market side of the YUKOS affair” (with Konstantin Sonin) “Risks of investing in the Russian stock market: Lessons of the first decade” (with Alexey Zabotkin)

Courses Taught New Economic School, Master program courses: Foundations of Finance, Corporate Finance, Investment Theory, Econometrics of Financial Markets, Risk Management, Microeconomics II Outreach Center at the New Economic School, courses for university teachers: Investment Theory (2003) Executive education courses: Market and Credit Risk Management, Financial Modeling, Financial Strategies, Use of Real Options in Capital Budgeting

Selected Conference and Seminar Presentations Workshop on Financial Market Development in the Central and Eastern European Countries, Prague, May 2006 Global Institute China-Russia Conference, Beijing, December 2005 Erasmus University Rotterdam, the Netherlands, April 2006 Maastricht University, the Netherlands, April 2006 Bank of Finland Institute for Economies in Transition (BOFIT), March 2006 Swedish School of Economics (HANKEN), February 2006 The EFA meeting, Moscow, August 2005 The ACES meeting, Philadelphia, USA, January 2005

Scholarships, Grants, and Awards 2001 Research grant, BSI Gamma Foundation 1997-98 Scholarship, CentER, Tilburg University 1997 Nemchinov’s award, Central Economic Mathematical Institute (CEMI) 1996-97 Scholarship, University Center of Market Economics (UCME), Tilburg University

NES Annual Report 2005-2006 53 Membership in professional associations: American Finance Association, European Finance Association, and European Economics Association

SERGEI M. GURIEV

Papers in refereed journals Bhattacharya, Sudipto, and Sergei Guriev. “Knowledge disclosure, patents and the optimal organization of R&D”. Journal of European Economic Association, December 2006. Friebel, Guido, and Sergei Guriev. "Smuggling humans: A theory of debt-financed migration." Forthcoming, Journal of European Economic Association, December 2006. [lead article] Guriev, Sergei, and Dmitry Kvassov (2005) “Contracting on time”, American Economic Review, December 2005. Friebel, Guido and Sergei Guriev (2005). “Attaching Workers Through In-kind Payments: Theory and Evidence from Russia”, World Bank Economic Review, September 2005. Guriev, Sergei, and Andrei Rachinsky (2005). “The Role of Oligarchs in Russian Capitalism”, Journal of Economic Perspectives, Winter 2005, 19(1), 131-150. Andrienko, Yuri, and Sergei Guriev (2004). “Determinants of Interregional Labor Mobility in Russia.” Economics of Transition 12(1), 1-27. [lead article] Guriev, Sergei (2004). “Red tape and corruption.” Journal of Development Economics 73(2), 489- 504. [lead article] Guriev, Sergei, and Dmitry Kvassov (2004). "Barter for price discrimination", International Journal of Industrial Organization, 22(3), 329-350. Guriev, Sergei (2003). “Incomplete Contracts with Cross-Investments.” Contributions to Theoretical Economics, Berkeley Electronic Journals on Theoretical Economics, 3(1), Article 5. Guriev, Sergei, Igor Makarov, and Mathilde Maurel (2002). "Debt Overhang and Barter in Russia", Journal of Comparative Economics, 30(4), 635-656. [lead article] Guriev, Sergei (2001). “On Microfoundations of Yaari’s Dual Theory of Choice”. Geneva Papers on Risk and Insurance Theory, 26(2), 117-137.

Chapters in books Guriev, Sergei. “Oligarchs.” Forthcoming, New Palgrave Dictionary of Economics. Guriev, Sergei, and William Megginson (2006). “Privatization: What Have We Learned.” In Bourguignon, Francois, and Pleskovic, Boris, ed. Beyond Transition. Proceedings of the 18th ABCDE, World Bank. Bolton, Patrick, Erik Berglof, Sergei Guriev, and Ekaterina Zhuravskaya (2006). “Corporate Finance in Emerging Market Economies.” In Bourguignon, Francois, and Pleskovic, Boris, ed. Beyond Transition. Proceedings of the 18th ABCDE, World Bank. Guriev, Sergei and Barry Ickes (forthcoming). "Microeconomic Aspects of Economic Growth in Eastern Europe and the Former Soviet Union, 1950-2000", in Randall Filer and Gur Ofer (ed.) “Growth in Transition” Oxford University Press. Guriev, Sergei and Djavad Salehi-Isfahani (2003) "Microeconomics of Growth Around the World” in Lyn Squire and Gary McMahon, ed. “Explaining Growth: A Global Research Project.” Palgrave McMillan. Guriev, Sergei and Barry Ickes (2000). "Barter in Russian Firms" in Paul Seabright, ed. 'The Vanishing Ruble: Barter and Currency Substitution in Postcommunist Economies' Cambridge University Press, 2000. Guriev, Sergei and Barry Ickes (1999). "Russia's Barter Economy", in Erik Berfgloef and Pramesh Vaitilingam, ed. 'Stuck in Transit: Rethinking Russian Economic Reform', chapter 7, CEPR, London.

Grants and Honors

Young Global Leader, World Economic Forum, Davos, 2006 First Place Medal for Outstanding Research on Conflict, Security, and Migration, Global Development Network, Fifth Annual Awards Competition, 2005 Teaching Excellence Award, 10th Anniversary of the New Economic School, 2002

NES Annual Report 2005-2006 54 Best Academic Manager, Russian Academy of Science, Science Support Foundation, Moscow, 2001 “The Person of Values” order #18, Club2015, Moscow, 2001 Best Young Economist Essay Prize, European Association for Research in Industrial Economics, 2001 Gold Medal for Best Research on Institutions and the Market, Global Development Network, First Annual Awards Competition, 2000 Scholarship, Regional Scholar Exchange Program, US Information Agency and International Research Exchange Bureau, 1997-98 Honorary Research Fellowship, Wolverhampton Business School, UK, 1996-99 Research Grant “Russia's Social Sciences: The New Perspective”, Moscow Social Science Foundation and Ford Foundation, 1997-98 and 1995-96 Prize for Best Research Work of a Young Researcher, Research Competition in Honour of the 40th Anniversary of the Computing Center, Russian Academy of Science, 1995 Research Grant “Young Economists of Russia”, IRIS Research Center, University of Maryland and CEMI, Moscow, 1994-95 Academician Lavrentiev's Scholarship of Distinction, Moscow Institute of Physics and Technology, 1992-93 Medal of Distinction at high school graduation, Kiev Physics and Mathematics High School No.145, 1988

Membership in professional associations American Economic Association, European Economic Association, Econometric Society

Referee service American Economic Review, Berkeley Electronic Journals for Theoretical Economics, Economic Journal, Economics Letters, Economics of Transition, Economic Systems, European Economic Review, Journal of Comparative Economics, Journal of Development Economics, Journal of the Economic Behavior and Organization, Journal of European Economic Association, Journal of Political Economy, Journal of Public Economics, Oxford Economic Papers, Review of Economic Studies.

IRINA A. DENISOVA

Publications “Staying Longer in Unemployment Registry in Russia: Lack of Education, Bad Luck or Something Else?” (in Russian) - in "Aktualnie voprosi socialnoi politiki (kommentarii ekonomistov, sociologov i demografov)", Moscow, 2002. “Monetary Policy Transmission in Russia: the Role of Industrial Interenterprise Arrears” // in the book ‘Post-Soviet Policy Perspectives’ ed. by Alexei D. Voskressensky and Frank Columbus, New York, Nova Science Publishers, 1997

Working Papers “Hiring or Retraining: experience of Russian industrial enterprises” (in Russian, joint with Olga Lazareva and Sergei Tsukhlo) – Москва, ИЭПП, серия научные труды, № 98) “Poverty is No Crime: Measuring Poverty in Russian Regions” (joint with Marina Kartseva) – CEFIR Working paper, 2005 – CEFIR Working paper “Adjustment Costs of Trade Liberalization in Russia” (joint with Akhmed Akhmedov, Evgenia Bessonova, Ivan Cherkashin and Elena Grishina) – CEFIR Working paper “Premium for Degree in Engineering: Estimation of Returns to Field-Specific Education in Russia” (joint) – preprint HSE, Moscow, 2005 “Premium for Degree in Engineering: Estimation of Returns to Field-Specific Education in Russia” (joint with Marina Kartseva) – CEFIR Working Paper, 2004 “Re-Training Programs in Russia and Romania: Impact Evaluation Study “ (joint with Jacob Benus, Raluca Catrinel Brinza, Vasilica Cuica and Marina Kartseva) – CEFIR Working Paper, 2004 “Impact Evaluation Study of Social Adaptation and Public Works Programs in Russia” (joint with Marina Kartseva) – mimeo «WTO Accession and the Labor Market:Estimation for Russia» (joint) – Moscow Carnegie Center, Working Paper, issue 3б, 2004

NES Annual Report 2005-2006 55 “WTO Accession and the Labor Market:Estimation for Russia” (joint with Akhmed Akhmedov, Evgenia Bessonova, Ivan Cherkashin, Elena Grishina and Denis Nekipelov) – CEFIR Working paper, 2003 «Active Labor Market Policies in Russia: Regional Interpretation Determines Effectiveness?» (joint with Akhmed Akhmedov and Marina Kartseva) – CEFIR Working Paper, 2003 “Staying Longer in Unemployment Registry in Russia: Lack of Education, Bad Luck or Something Else?” – CEFIR Working Paper, 2002 “Child Benefits and Child Poverty” (joint with Stanislav Kolenikov and Ksenia Yudaeva) – CEFIR Working Paper, 2000 “Credit Channel of Monetary Transmission: the Role of Industrial Interenterprise Arrears” – EERC Working paper No. 99/12E, 1999 Social Policy in Russia: Employment Fund – Russian Economic Trends, 1999, No.1 “The Regulation Framework of the Russian Labour Market: Current State and Reform Tendencies” (joint with Guido Friebel and Elena Sadovnikova) – RECEP Working Paper No.5, 1998 “Internal Labour Markets and Human Resource Policies: an Account from the Existing Surveys” (joint with Guido Friebel and Elena Sadovnikova) – RECEP Working Paper No.6, 1998

Work in Progress "Poverty Is No Crime: Measuring Poverty in Russian Regions" (with Marina Kartseva)

Courses Taught New Economic School, Master program courses: Labour Economics, Macroeconomics-2 Outreach Center at the New Economic School, courses for university teachers: Macroeconomics, Microeconomterics (Labour economics)

Selected Conference and Seminar Presentations Second World Conference of Society of Labor Economists (SOLE) and European Association of Labour Economists (EALE), San-Francisco, June 2-5, 2005. Presentation of the paper “Re- Training Programs in Russia and Romania: Impact Evaluation Study” 8th Annual Conference on Global Economic Analysis Trade, Poverty, and the Environmrnt, Lubeck, Germany, June 9-11, 2005. Presentation of the paper “Adjustment Costs of Trade Liberalization in Russia” Social Sector Networking Workshop, Prague, March 1-4, 2005. Presentation of the paper “Re- Training Programs in Russia and Romania: Impact Evaluation Study” European Association of Labour Economists (EALE) Annual Conference, September 9-11, 2004, Lissbon Presentation of the paper “Premium for Degree in Engineering: Estimation of Returns to Field-Specific Education in Russia” Final conference of Think Tank Partnership Program, Slovenia, June 2004 Presentation of the paper “Re-Training Programs in Russia and Romania: Impact Evaluation Study“ European Association of Labour Economists (EALE) Annual Conference, September 18-20, 2003, Seville Presentation of the paper «Active Labor Market Policies in Russia: Regional Interpretation Determines Effectiveness?»

Scholarships, Grants, and Awards Swedish Professorship Award for working at CEFIR and NES 2001 Research Grant from the Ford Foundation 1996 Research Grant from Economic Education and Research Consortium Russia (EERC) 1994 Research Grant from the Ford Foundation

Membership in professional associations European Association of Labour Economists, American Economics Association

ALEXEI Y. DEVIATOV

Publications: Another Example in which Lump-Sum Money Creation is Beneficial (with Neil Wallace), Advances in Macroeconomics, Vol. 1: No. 1, (2001), Article 1.

Completed papers: Money Creation in a Random Matching Model

NES Annual Report 2005-2006 56 Exchange-Rate Volatility, Exchange-Rate Disconnect, and the Failure of Volatility Conservation (with Igor Dodonov) Reputation and the Soft-Budget Constraint (with Barry Ickes) Estimating a Cagan-type Demand Function for Gold: 1561-1913 (with Neil Wallace) Welfare Costs of Inflation in Russia (with Stas Ponomarenko, in Russian)

Work in progress: Reputation and the Business Cycle Building a Large-scale Macro Model for Russia

Presentations: Exchange-Rate Volatility, Exchange-Rate Disconnect, and the Failure of Volatility Conservation Midwest Economic Theory and International Economics Meetings, Vanderbilt University, Nashville TN, April 2005 ZEI (Center for European Integration Studies) Summer School 2003, University of Bonn, Bonn, August 2004 Reputation and the Soft-Budget Constraint EEA-ESEM Annual Congress 2006, Vienna, August 2006 Midwest Economic Theory and International Economics Meetings, Michigan State University, East Lansing MI, April 2006 AEA Annual Meetings, San Diego CA, January 2004 Money Creation in a Random Matching Model Workshop on Money, Banking and Payments, Federal Reserve Bank of Cleveland, Cleveland OH, August 2004 Midwest Economic Association Annual Meetings, Chicago IL, March 2004 EEA-ESEM Annual Congress 2003, Stockholm, August 2003 ZEI (Center for European Integration Studies) Summer School 2003, University of Bonn, Bonn, July 2003 Midwest Economic Theory and International Economics Meetings, University of Notre Dam, October 2002 Optimal Money Creation in a Random-Matching Model with Ex post Individual Rationality Conference on Monetary Economics, Federal Reserve Bank of Cleveland, Cleveland OH, August 2001 Another Example in Which Lump-Sum Money Creation is Beneficial Cornell-Penn State Macro Workshop, University Park PA, April 2000

GRIGORY KOSENOK

Awards SUAL Professorship Award, SUAL, 2006 Swedish Professorship Award, Economics Education and Research Consortium, 2002-2003. Bullis Scholarship, UWM, Department of Economics, 1996-1997.

Publication “An Alternative to Maximum Likelihood Based on Spacings”, with Stanislav Anatolyev (NES), Econometric Theory, 2005.

Research in Progress “Tests in Contingency Tables as Regression Tests”, with Stanislav Anatolyev (NES) “The Empirical Content of Quantal Response Equilibrium”, with Phil Haile (Yale U.) and Ali Hortacsu (U. of Chicago) “Individually Rational, Budget-Balanced Bayesian Mechanisms and Allocation of Surplus”, with Sergei Severinov (Duke U.) “Public Markets Tailored for the Cartel - Favoritism in Procurement Auctions”, with Ariane Lambert Mogiliansky (CERAS, Paris) “Multitask Projects, Common Agency and Firewalls”, with Timofiy Mylovanov (U. of Bonn) “Efficient Collusion with Private Monitoring” “Limits of Acquisition in Price Competing Industry”.

NES Annual Report 2005-2006 57 KONSTANTIN SONIN

Academic Papers A Theory of Brinkmanship, Conflicts, and Commitments (with Michael Schwarz) Journal of Law, Economics, and Organization, forthcoming Collusive Market Sharing and Corruption in Public Procurement (with Ariane Lambert), Journal of Economics and Management Strategy, forthcoming Why the Rich May Favor Poor Protection of Property Rights, Journal of Comparative Economics, 31 (4), 715-730. Information Revelation and Efficiency in Auctions (with Anna Mikoucheva), Economics Letters, 83(3), pages 277-284. Passive Creditors, International Finance, Vol. 8, No. 1. (July 2005), pp. 57-86.

Non-academic Fortnightly column on economic and political affairs in The Moscow Times and Vedomosti (in Russian)

Recent Conferences and Invited Seminars GSB Stanford Political Economy Seminar, September 2006 ISNIE Annual Conference, Boulder, CO, September 2006 EEA/ESEM Annual Conference, Vienna, August 2006

SERGEY STEPANOV

Working Papers “Shareholder Protection and Outside Blockholders: Substitutes or Complements?” “Shareholder Access to Manager-Biased Courts and the Monitoring/Litigation Tradeoff” “Law and the Choice of Corporate Governance at the Firm Level”

Work in Progress “Corporate governance in Russian industry” “Hostile takeovers in a weak legal environment” “Private equity and venture capital in Russia”

Courses Taught New Economic School, Master program courses: Corporate Finance I and II, Game Theory I

Selected Conference and Seminar Presentations 21th Annual Congress of the European Economic Association, Vienna, Austria, August 2006 32nd Annual Meeting of the European Finance Association, Moscow, Russia, August 2005 Conference in tribute to Jean-Jacques Laffont, Toulouse, France, June 2005 Governance Seminar at SITE, Stockholm School of Economics, Sweden, September 2004 SHEE/SITE Workshop on Transition and Institutional Analysis, Stockholm School of Economics, Sweden, October 2003 18th Annual Congress of the European Economic Association, Stockholm, Sweden, August 2003 Conference “The State of Economics and of Transition, Honoring 10 years of the New Economic School”, Moscow, Russia, December 2002

Scholarships and Grants 2000-04 PhD scholarship, ECARES, Université Libre de Bruxelles 2004-05 PhD scholarship from the Foundation by Jan Wallander and Tom Hedelius, Handelsbanken (Sweden)

Membership in professional associations: European Economic Association European Finance Association

ANTON SUVOROV

Grants and Awards 2005-2006: “Swedish Professorship Award” 2000-2003: “Bourse d’excellence Eiffel” of the French Ministry of Foreign Affairs

NES Annual Report 2005-2006 58 1999: “Bourse d’etudes” of the French Government 1993: “Soros Student” grant, Moscow

Courses Taught at NES Behavioral Economics Microeconomics-4, Microeconomics-5

Working Papers “Discretionary Acquisition of Firm-Specific Human Capital under Non-Verifiable Performance” with Akhmed Akhmedov (CEFIR) 2006 “Advice by an Informed Intermediary” with Natalia Tsybouleva (Toulouse University), 2004 “Discretionary Rewards as a Feedback Mechanism” with Jeroen van de Ven (Utrecht School of Economics), 2003, submitted to Games and Economic Benavior “Addiction to rewards”, mimeo, 2002 “Barter and Long-Term Relations”, NES BSP Series Working Paper, 1999

Research in Progress “The impact of psychological biases on occupational choice and job performance” (joint with Ekaterina Zhuravskaya (NES/CEFIR)) “Information transmission through rewards: an experimental study” (joint with A. Bremzen (NES) and A. Akhmedov (CEFIR)) “Learning and not learning from others’ mistakes” (joint with G. Friebel (Toulouse University) and S. Guriev (NES))

Conference presentations April 2006: RAMEK conference, Ekaterinburg April 2006: HSE annual conference, Moscow October 2005: Shatalin Readings annual conference, Nizhny Novgorod August 2005: Econometric Society World Congress, London June 2005: Conference on Psychology and Economics, Toulouse April 2005: International Industrial Organization Conference, Atlanta January 2004: ENTER Jamboree, Barcelona (discussant) October 2003: “Winter Meeting of Econometric Society”, Madrid April 2003: VIII Spring Meeting of Young Economists, Leuven January 2003: ENTER Jamboree, Tilburg September 2002: “Coalition Formation, Groups and Networks”, Aix-en-Provence August 2002: “Summer Institute in Behavioral Economics”, University of California, Berkeley (without presentation) April 1999: Fifth NES Annual Conference, Moscow

KSENIA YUDAEVA

Publications: In English: The New Political Economy of Russia, with Erik Berglof, A. Kunov, Yulia Shvets. MIT Press, July 2003 “Up and Down the stairs: Paradoxes of Russian Economic Growth”, with Maria Gorban, Natalia Volchkova, Vladimir Popov. In “The Economic Prospects of the CIS: Sources of Long Term Growth”, Gur Ofer and Richard Pomfred (eds.), Edward Elga, 2004 “Globalization and Inequality in CIS countries: the Role of Institutes”. In Lyn Squire and Natalia Dinello (eds.) “Globalization and Equity: Perspectives from the Developing World”, Edward Elga, 2005. “Does Foreign Ownership Matter? Russian experience”, with Konstantin Kozlov, Natalia Melentieva, Natalia Ponomaryova. Economics of Transition, 11 (3) 2003 “Survey of research on impact of the Russia’s entry into the WTO onto its economy”, written for OECD Round table on improving analytical support to the government, published as OECD report, June 2003

In Russian (academic papers): “Rossia v VTO: mify I realnost” (“Russia in the WTO: Myths and Reality”), with Sergey Guriev and Maria Gorban. Voprosy Ekonomiki, 2002

NES Annual Report 2005-2006 59 “Innovatsionnaya activnost rossiyskih firm” (“Innovative activities of Russian Firms”), with K.Kozlov, D.Sokolov. Economichesky Zhurnal Vysshey Shkoly Economiki V.8, N.3, 2004. A shorter version is published in the proceedings of the 2004 HSE conference. “Konkurentosposobnost? Spasibo, ne nado”. (“Competitiveness? Thanks, We Don’t Need It”), Rossiya v Globalnoy Politike (Russian version of Foreign Affairs), No.4, 2004. “Chto Zhdut on WTO rossiyskie predpriyatiya: resultaty oprosa” (“What Russian Firms Expect from the WTO accession: survey results”) Working paper No.4, Carnegie Moscow Center, 2004. A shorter version is also published in a book volume of the Russian Academia of State Service. “Sectoral and Regional Analysis of the Consequences of Russia’s Entry into the WTO: An Appraisal of Costs and Benefits” with Evgenia Bessonova, Konstantin Kozlov, Boris Belov, Denis Sokolov, Nadezhda Ivanova. Working paper No. 3, Carnegie Moscow Center, 2003 “Kak nam diversifitsirovat export? (How can we diversify export?), Pro et Contra, V.9, 2005, N.3.

Non-academic publications: Policy reports for WEF, Baltic Development Forum, Moscow ILO office, Russian Ministry of Economy and Trade, Russian Antimonopoly committee, Swedish Ministry of Finance, Moskovaky Obschenauchny Fond, etc. More than 30 publications in the Russian press.

Work in Progress: “Role of investment climate in competitiveness of Russian firms”, paper written for the joint project of the HSE and the World Bank on competitiveness. “Innovation activities of Russian firms”, with K.Kozlov. “The Role of FDI in Eastern Europe: A Closer Look at the Evidence”, with I.Tytell. Paper written for the EBRD 10th anniversary program. “Estimation of the Russia's trade policy options with the help of the Computable General Equilibrium Model”, with N. Tourdyeva and S. Alexeev, CEFIR Working Paper, 2003 “Trade Liberalization, Foreign Direct Investment, and Productivity of Russian Firms”, with Evgenia Bessonova and Konstantin Kozlov. Mimeo, CEFIR. “Child Poverty and Child Benefits”, with Irina Denisova and Stanislav Kolenikov. CEFIR Working Paper, 1999

OLEG A. ZAMULIN

Publications: “Foreign Currency Pricing” (with Irina Levina), Journal of Money, Credit, and Banking, Volume 38, Number 3 (April 2006), pp. 679-696. “The Role of Real Business Cycle Theory in the Evolution of Macroeconomic Thought” (in Russian), Voprosy Ekonomiki, 2005 (1) “Survey of New Keynesian Economic Theory with Special References to Russia” (in Russian), 2002, Analytical Supplement 1(1), pp. 132-48, The School of Economics Institute, St.Petersburg, Russia

Unpublished Academic Papers in Progress: “Monetary policy in a natural resource-based economy” (with Kirill Sosunov) “Inflationary consequences of real exchange rate targeting via accumulation of reserves” (with Kirill Sosunov) “Can oil prices explain the real appreciation of the Russian ruble in 1998-2005?” (with Kirill Sosunov) “Sticky Prices versus Sticky Information: A Test Using a Natural Experiment in the Russian Real Estate Markets” (with Konstantin Styrin)

Leadership in Policy-Related and Consulting Projects: “Analysis of the Monetary Policy Impact on the Banking Sector Development,” consulting service for the Bank of Russia sponsored by the Foundation for Enterprise Restructuring and Financial Institutions Development. Head of working group, fall 2005. “Monitoring of Administrative Barriers to Small Business Growth,” CEFIR project sponsored by the World Bank and USAID. Project leader, 2001-2005.

Selected Conference Presentations: Bank of Finland – CEFIR Workshop on Transition Economics, Helsinki, Finland, April 2006

NES Annual Report 2005-2006 60 Annual Congress of the European Economic Association, Amsterdam, the Netherlands, August 2005 Bank of Finland – CEFIR Workshop on Transition Economics, Moscow, April 2005 State University - Higher School of Economics VI International Scientific Conference "Modernization of Economy and Nurturing of Institutions", Moscow, Russia, April 2005 New Economic School annual research conference, Moscow, Russia, October 2004 World Bank Scaling Up Poverty Reduction Conference, Shanghai, China, May 2004 Bank of Finland – CEFIR at NES Workshop on Transition Economics, Helsinki, Finland, April 2004 “Comparing the Experience of Transition in China and Russia,” conference in Beijing, China, November 2003 New Economic School annual research conference, Moscow, Russia, October 2003 European Economic Association annual congress, Stockholm, Sweden, August 20-24, 2003 ABCDE-Europe World Bank conference, Paris, France, April 2003 New Economic School 10th Anniversary Conference, Moscow, Russia, December 2002 New Economic School annual research conference, Moscow, Russia, October 2002 17th Annual Congress of the European Economic Association, Venice, Italy, August 22-24, 2002 South-East International Economics and Economic Theory Conference, Miami, Florida, USA, November 2001

Administrative Services: Director of the Outreach Center, New Economic School, since September 2002 Deputy chair of the Admissions Committee, New Economic School, November 2002 – August 2005, Chair of the Economics exam committee, since November 2002 Acting Academic Director of CEFIR at NES, September 2003-June 2004

EKATERINA ZHURAVSKAYA

Academic publications: “Incentives to Provide Local Public Goods: Fiscal federalism – Russian style”, Journal of Public Economics 76 (3), 2000, Special Issue “Rackets, Regulation and the Rule of law”, Journal of Law, Economics and Organization, 16(2), 2000 (with T. Frye) “Does Arbitrage Flatten Demand Curves for Stocks?”, Journal of Business, 75(4), 2002 (with J. Wurgler) “Federal Tax Arrears in Russia: Liquidity Problems, Federal Redistribution, or Regional Protection?”, Economics of Transition, 12(3), 2004, lead article (with M. Ponomareva) “Opportunistic Political Cycles: Test in a Young Democracy Setting”, Quarterly Journal of Economics, 119(4), 2004 (with A. Akhmedov) “Who are the Russian Entrepreneurs?”, Journal of European Economic Association, Papers and Proceedings, 3(2-3), 2005 (with S. Djankov, E. Miguel, Y. Qian, G. Roland) “Laws for Sale: Evidence from Russian Regions”, American Law and Economics Review, Special issue, 3 (1), 2005 (with I. Slinko and E. Yakovlev) “Entrepreneurship in China and Russia Compared”, Journal of European Economic Association, Papers and Proceedings, forthcoming spring 2006 (with S. Djankov, Y. Qian, G. Roland) “Who Are China’s Entrepreneurs?” American Economic Review, Papers and Proceedings, 96 (2), 2006 (with S. Djankov, Y. Qian, G. Roland) “Whither Russia? A Review of Andrei Shleifer’s Normal Country” A longer book review in the Journal of Economic Literature, forthcoming 2006

Chapters in published volumes: Governance, Decentralization and Reform in China, India and Russia. Dethier, J.J. (ed.) Kluwer Academic Publishers, Dordrecht, 2000 Stuck in Transit: Rebuilding the Russian Economy. E.Berglof and R.Vaitilingam (eds.) Brookings, 2000 Building a Trustworthy State: Problems of Post-Socialist Transition. J.Kornai and S.Rose- Ackerman (eds.), Palgrave Macmillian, 2004

Journal articles under review and working papers: “Decentralization and Political Institutions”

NES Annual Report 2005-2006 61 CEPR Discussion Paper #3857, 2003 (with R. Enikolopov) last revision August, 2005, Revise and resubmit in the Journal of Public Economics “Businessman Candidates” 2006 (with S. Gehlbach and K. Sonin) “Capture of Bankruptcy: Theory and Russian Evidence” CEPR Discussion Paper # 2488, 2000, (with A. Lambert and K. Sonin) last revision June, 2003 “State Capture in a Federation” (with E.Yakovlev) last revision October, 2005 “State Capture and State vs. Private Ownership” (with E.Yakovlev) last revision March, 2005, Revise and resubmit in the Economic and Transition “Firms and Public Service Provision in Russia” (with P. Haaparanta, T. Juurikkala, O. Lazareva, J. Pirttila, and L. Solanko), 2003

Policy papers and publications: “Why regulation matters for private protection rackets and public goods provision?” Russian Economic Trends, Volume 4: Issue 4, 1998 “Inter-Governmental Relations in Russia,” Russian Economic Trends, Volume 8: Issue 1, 1999 “Bankruptcy in Russia: Away From Creditor Protection and Restructuring,” Russian Economic Trends, Volume 9: Issue 1, 2000 “Fiscal Federalism in Russia: Problems and Perspectives,” CEFIR policy paper, 2001 (with R.Enikolopov and A.Makrushin) “Monitoring of Administrative Barriers to Small Business – Rounds 1, 2, 3, and 4,” CEFIR policy papers, 2002, 2002, 2003, 2003, and 2004

Courses Taught: New Economic School, Master program courses: Political Economics (2005)

Professional awards:

Hans Rausing Assistant Professorship award funded from the Kurt and Olga Charitable Trust funds, since 1998 Young Academic Economists’ Competition Award of the Fifth Nobel Symposium in Economics, “Economics of Transition,” 1999 Zvi Griliches Excellence Award for research in Economics, Economic Education and Research Consortium, 2000 Global Leader for Tomorrow, the World Economic Forum, Davos, 2001 Best Economist Award, the Russian Academy of Sciences, 2002 and 2003 The First Prize (Gold medal) in the GDN Medals Competition for Research in Development, 2006

NES Annual Report 2005-2006 62 Appendix 3: Theses Abstracts, 2005-2006

Levon Atanassian Title: Long-term Poverty in Russia Project: Incidence and Duration of Poverty in Russia Supervisor: Irina Denisova Abstract: There was a substantial economic growth in Russia in recent years, which lead to changes in life of the country. It is hence very interesting whether long-term poverty has also changed. The aim of this paper is to identify characteristics of households and individuals, that determine duration of poverty spells and to compare the pre-growth and growth periods patterns. Households’ composition, gender of households’ heads, level of education, health status of family members, employment at a state enterprise, location of a household are the candidates for the long-term poverty determinants. The tests are based on ordered-probit regressions using RLMS panel for years 1994-2004.

Oleg Baranov Title: Shake-out in IO via creation of new brands Project: Shake-out in IO Supervisor: Grigory Kosenok Abstract: Although examples of shake-out are numerous in real life, this topic is one of the most undeveloped in IO. In the framework of this problem many economists try to understand what the driving forces of the shake-out are. A particular interesting starting point is to consider the shake-out by a leading firm in the industry. The firms can use many instruments to cause negative influence on the profits of the other firms. In this work we explore the case when the leading firm speeds up the process of shake-out by using the pressure of extra diversity of brands. We have developed a dynamic game-theoretic model which allows to demonstrate the process of shake-out as a result of expanding variety of brands by the leading firm. We have found that the different types of shake-out could be observed in the equilibrium. In the framework of the model some extensions with important economic background are discussed. The social impact of such policy will be investigated.

Dmitry Bianko Title: Corruption and competition between state agency. Empirical study of Russian markets Project: Economics of Education Supervisor: Valery Makarov Abstract: In modern Russian economy administrative barriers is extremely difficult part to pass through. Based on CEFIR data which was gathered from 2000 until 2005 years we investigate how number of government «regulators» influence small and medium business grows. Also it is very interesting that nobody estimate this dependence.

Rostislav Bogoslovsky Title: Employers’ Provision of Health Insurance in the Presence of Public Health Care Provision Project: Topics in institutions and microeconomics Supervisors: Andrei Bremzen, Anton Suvorov Abstract: Although provision of private health insurance by employers is natural in a system with no government-subsidized health insurance, it is more puzzling under universal fully government-subsidized health insurance coverage. Russia is a case in point: roughly one third of employers provide private health insurance contracts to their employees as a part of fringe benefits. Why do employers sponsor private health insurance for their workers in such countries as Russia? It turns out that in the presence of a large public-private quality gap, which is apparently the case in Russia, and a “teamwork effect” – a type of externality that represents importance of contribution of a fixed number of workers constituting a team for high total output, it may be in an employer’s interests to provide private health insurance so that employees would get better and faster treatment. The thesis discusses issues of optimal health insurance plans. In designing insurance plans, employers, though willing to attract new employees with fringe benefits and particularly

NES Annual Report 2005-2006 63 with private health insurance, should take into consideration possible adverse selection problem.

Sofia Borisova Title: Dutch disease in a resource-based economy Project: Monetary and fiscal policy in the resource-base economy Supervisor: Kirill Sosunov Abstract: Dutch disease phenomenon is already a widely-studied topic. Nevertheless, much research is conducted under the assumption of labor as the only factor of production. This paper tries to incorporate the role of capital and investment. The purpose of this paper is to develop a three-sectoral general equilibrium model with an externality in manufacturing sector which would allow to analyze the impact of exogenous commodity prices on the economy.

Maria Bulytcheva Title: The Impact of Socio-economic Factors on Memory Limitations Manifested by Agents Project: Economics of Education Supervisor: Valery Makarov Abstract: The scope of this research belongs to the field of behavioral economics. The problem at issue is the effect of memory limitations and its genesis. An attempt has been made to find factors which would explain the effect of memory constraint manifested by the agents. This paper is based upon the data on small business-firms, which reveals what part of information firm managers tend to forget. The data source that has been used is the results of CEFIR survey of the level of administrative barriers for small business development. This database permits to obtain statistically significant variables which partially explain why people forget obvious things. Further on we proceed with more complicated regressions that include all significant variables as well as we carry out the same kind of research on the regional rather than firm level and thus reveal the impact of various institutional factors on the level of memory constraint. The coefficients attained help to assess the bias which is inevitably entailed by each survey.

Yaroslav Volkov Title: Behavior of tests for structural breaks in non-standard situations Project: Structural breaks and structural change in financial and other series Supervisor: Stanislav Anatolyev Abstract: The idea of this paper is to reflect on the structural breaks in linear models and consider the behavior of the tests for the presence of structural breaks in non-standard situations. In particular, the assumption of abrupt break is weakened, the quick deviation case is considered and non-simultaneous shifts in coefficients are discussed. The simulation design of these cases is proposed and the results of simulations of the tests are analyzed.

Julia Voloshina Title: Duopoly and monopoly equilibria in Electricity Markets Project: Network Markets for Homogeneous Goods Supervisor: Alexander Vasin Abstract: Nowadays, the study about firms’ ability to trade in electricity market has received considerable attention in the academic literature. The purpose of this paper is to find equilibria in a specific model in which producers and consumers interact in a two-stage way. At the first stage we will analyze effects of forward contracts on duopoly and monopoly environments. For that purposes the Bertrand-Edgeworth competition will be examined. At the second stage, standard auction will be considered and equilibrium price will be determined. An interesting result is that sometimes the existence of only spot market can be better for consumers than the existence of both forward and spot markets. In this paper it will be shown that final result depends on rationing rules. Finally, the differences between two equilibria will be examined. One of them is obtained in the model considered in this paper and another equilibrium is obtained in the standard auction.

NES Annual Report 2005-2006 64 Maxim Vorobiev Title: Governement role in defeateng the "resource curse" Project: Resource Abundance, Globalization, and Economic Development Supervisors: Victor Polterovich, Vladimir Popov Abstract: The purpose of this paper is to construct a macroeconomic model that would demonstrate the impact of natural resources on stability and efficiency of different political regimes. Special attention will be given to matters of tax policy as a way of combating the “resource curse”. The model will be based on the papers of Dani Rodrik, “Coordination failures and government policy: A model with applications to East Asia and Eastern Europe” and Daron Acemoglu “Modeling inefficient institutions”. To adapt the production sector of the Rodrik’s model to Russian environment the low-tech sector will be replaced with the primary one. Acemoglu’s model will be used to incorporate agent’s behavior. The resulting model will also help to account for the impact of bad institutions on economic growth.

Tatyana Vyatkina Title: R&D and Shake-out Project: Shake-out in IO Supervisor: Grigory Kosenok Abstract: There are several key factors that determine the industry monopolization process. First, dominant firm in the industry may have an incentive to capture the whole industry in order to enjoy the whole market. This goal can be achieved by means of investment in R&D and consequently lowering down marginal costs. Second, all the firms are initially heterogeneous, and heterogeneity of fringe may speed up the shake-out process. In this paper price competition and investment in R&В by the dominant firm are considered. It means, that the leading firm faces the tradeoff between investment spending, costs of shaking-out small firms from the industry and collecting momentary profits. Thus, the purpose of this paper is to understand the equilibrium evolution of industry concentration within the context of a model that incorporates these effects. The comparison of different (shake-out, central planning, no shake-out) are now the issues under consideration.

Alexei Galanin Title: The Choice of Corporate Governance under a Takeover Threat Project: Corporate governance and optimal design of corporate law in emerging markets Supervisor: Sergey Stepanov Abstract: This work analyzes hostile takeovers in firms with one blockholder and a continuum of atomistic shareholders. We build a model in which an incumbent controlling shareholder can resist a takeover in two ways. First, he can directly counterbid a raider’s tender offer. Second, by setting a sufficiently high level of corporate governance in a firm he can prevent a takeover attempt ex-ante. We solve for the level of corporate governance that the incumbent will optimally choose – it will be the minimum level that is sufficient to prevent the takeover. We further analyze how this level depends on ownership concentration and legal environment. The results shed light on the choice of corporate governance by firms in different legal environments.

Alexander Glebov Title: Incomplete enforcement of intellectual property rights, innovation and economic growth Project: Imperfect Information and Bounded Rationality with Applications to Macroeconomic Dynamics Supervisor: Alexei Deviatov Abstract: Intellectual property rights protection is designed to provide sufficient incentives to innovators. However, it can also carry some loss because it grants monopoly power to innovators. The consequences of overprotection of intellectual property rights might be more severe when innovations are sequential and complementary. This might result in a lower social value of ideas being created and reduce economic growth. An ex ante optimal degree of intellectual property protection may not be optimal ex post when a new state of the economy is realized. In the framework of a quality-ladder endogenous growth model it is demonstrated that if there is incomplete information and/or there is some rigidity in the legislative system, incomplete enforcement of patent rights may become optimal. The idea

NES Annual Report 2005-2006 65 is at odds with conventional wisdom which suggests that perfect property rights protection is desirable.

Konstantin Golyaev Title: Monitoring Model Stability with Sample Revisions Project: Structural breaks and structural change in financial and other series Supervisor: Stanislav Anatolyev Abstract: Econometric monitoring is a recently developed tool that allows the researcher to discern, whether the newly arrived observations can be explained by a previously estimated model. Most of the existing monitoring schemes, however, are not intended for usage with sample revisions. The term “sample revision” is used to describe the process of a restart of the monitoring procedure, and the purpose of this paper is to give full consideration to this matter. Alongside with the asymptotic properties and finite sample behavior analysis, some empirical applications of the discussed method are considered.

Olga Gorelkina Title: A Microanalysis of Fertility in Russia: the Role of Non-Economic Considerations Project: Incidence and Duration of Poverty in Russia Supervisor: Irina Denisova Abstract: The low current fertility rate in Russia is perceived by both the society and the authorities as a major concern, which requires urgent solution. The deterioration of the fertility situation in the first half of the 90es came along with the slump of the per-capita GDP, making one think that economic factors should be crucial in childbearing decisions. In order to set up sound demographic policies one needs to realize to what extent the material constraints (e.g., household incomes, living conditions) are actually binding today. The current paper uses 9 rounds of the nationally representative panel data of the RLMS (1994- 2004) to distinguish between unconstrained wants to have children and actual births. We find that subjective factors, such as subjective welfare measures, moral values, family relations and religiousness govern the decisions to give birth and to make a pregnancy interruption even after controlling for economic (material) factors. We also examine the backward chain, namely how births alter mothers’ perceptions of life and whether children bring about happiness after all. Taking into account the high rate of presumably “shotgun weddings” in Russia, we also analyze the relationship between births/abortions and marital status changes, and use the Russian data to verify whether causality runs from stable partnership to having children, and not vice versa. Further, we try to test whether the motivation for having first and subsequent children is different, being rather extrinsic in the first case and intrinsic – in the second.

Timur Gusmanov Title: The Determinants of Money Flows to Russian Mutual Funds Project: Mutual funds Supervisor: Alexei Goriaev Abstract: The existing evidence for US mutual funds shows that there is an asymmetry in relationship between fund flows and their past raw of risk-adjusted returns. The purpose of this paper is to examine the determinants of money inflows of Russian mutual funds. We find that consumers invest disproportionately more in funds that performed very well the prior period, and that their decision is affected by fund’s size, age, expense ratio and load fees. We will also investigate whether fund family’s characteristics influence flows. While the analysis for the US funds is based on monthly or even lower-frequency data, we use daily data on fund’s assets and returns, and obtain slightly different results.

Mikhail Dubovichev Title: Stabilization Funds Project: Causes of Resource Dependence of the Russian Economy: the "Dutch Disease" or Insufficiently Developed Institutions? Supervisor: Natalia Volchkova Abstract: Most of the resource-abundant countries have tried to design mechanisms which allow to smooth influence on the economy from resource price jumps. One of such mechanisms is the establishing of the stabilization fund. However, as experience shows, one could rarely reach desirable results from the stabilization fund operation.

NES Annual Report 2005-2006 66 In this paper we will classify series of stabilization funds by the most important parts of their operation such as principles of forming, law basis, etc. We will also perform series of case study, which permit as to understand key components of the success and failure of the fund.

Dmitriy Dubovskiy Title: Strategic Behavior of Political Parties Project: Economics of Education Supervisor: Valery Makarov Abstract: There exist a bulk of economic theories, which describe behavior of voters and political parties through the framework of game theory. It appears that often voters are considered as agents who simultaneously make their decisions. However, hardly can it happen in reality – more active agents react earlier, and the others join the game a bit later. The purpose of this paper is to produce a theoretical model which describes decisions of voters and political parties during election or revolution. Politicians do not have full information about people’s opinions. Active voters join the game earlier than others, thus they reveal the true distribution of people’s preferences. Parties can choose the moment to enter the political arena. It appears that a party may have incentive to postpone the moment of entry, since it can form a better political platform when the true people’s preferences distribution is known.

Stanislav Dyachkov Title: Dependence between volume of advertising and experience on the market of physician’s service Project: Topics in institutions and microeconomics Supervisors: Andrei Bremzen, Anton Suvorov Abstract: Empirical evidence suggests that advertising raises demand for a good advertised and that consumers consider advertising as a signal of the quality. Therefore, producers use advertising not only to raise demand, but also to differentiate their good from the group of the same goods. Using such differentiation a producer can avoid price competition and save positive profit. Paul Milgrom in his research “Price and Advertising Signals of Product Quality” shows that a high-quality producer would be willing to expend more on advertising than a low-quality producer. One can suggest that on the market of physician’s service a well-experienced physician is willing to expend more on advertising than a less- experienced physician too. But empirical research of John A. Rizzo and Richard J. Zeckhauser “Advertising and Entry: The Case of Physician Services” shows the opposite result. The main concern of the study will be to construct a model with two types of physicians assuming that advertising of physician’s service is usually “uninformative” because is hard to estimate the quality of a physician’s service even after consumption. The study will show that a well-experienced physician is willing to expend less on advertising than a less-experienced physician.

Aleksandra Evtifyeva Title: Inflation density forecast with Central Bank subjective judgments. Example of Russia Project: Monetary and fiscal policy in the resource-base economy Supervisor: Kirill Sossunov Abstract: The policy of inflation targeting has recently proved to be successful. Countries where the inflation targeting was implemented managed to achieve moderate inflation and economic growth at the same time. Recent theoretical studies demonstrate that since monetary policy affects the economy with a lag central banks should target not the variables themselves but their forecast values. Bank of England and Sveriges Riksbank were the first to take these recommendations into account. They base policy decisions on the methodology known as ‘fan charts’. This technique allows getting the density of the forecast distribution and taking into account subjective judgments of the monetary authorities about the uncertainty of forecast variables. The paper describes theoretical and empirical issues of inflation density forecast and the possibility to account for general information about the economy. We estimate an equation for inflation on the base of Russian macroeconomic data. The transmission channels of oil price shocks are discussed. On the ground of the estimated model a fan chart for inflation is constructed for the two coming years.

NES Annual Report 2005-2006 67

Nikita Zheleznyy Title: Risk Factors in Russian Stock Market Project: Mutual funds Supervisor: Alexei Goriaev Abstract: The existing evidence for developed financial markets shows that there is a set of factors which best capture return movement. It is widely accepted that the Russian stock market is considerable extent driven by global equity and commodity markets, exchange rates and the money market. The purpose of this paper is to evaluate the performance of various proposed candidates in capturing return movements. As candidates for such factors in the paper we use the factors associated with the market, size, past return, fundamental showing and macro variables.

Nadezhda Zhukova Title: The use of natural resources and economic growth in countries with weak institutions Project: Resource Abundance, Globalization, and Economic Development Supervisors: Victor Polterovich, Vladimir Popov Abstract: This paper analyzes the influence of institutions on the use of natural resources and its implications for economic growth in resource abundant countries. The purpose of the paper is to show that the quality of institutions determines whether the country will benefit from large quantities of natural resources. The paper examines the extension of an endogenous growth model considered in the paper “The Optimal Dutch Disease” by Matsen, Torvik (2005). Besides the learning-by-doing externality in the manufactured sector, productivity growth in the present paper is also fostered by technological investment. Weak institutions in the economy are modeled in two different ways. The quality of institutions is first described by the level of corruption and resource dissipation. It is shown that there exists a threshold level of resource wealth positively correlated with institutional quality which determines whether the economy will benefit from a natural resource boom. As a consequence, countries with strong institutions are less prone to suffer from resource curse which is consistent with empirical evidence. The paper also provides some implications for an optimal government policy depending on the anticipated resource prices. Another way institutions are introduced into the economy is through the power of interest groups. The allocation of natural resources between consumption and investment is determined in equilibrium when different interest groups make contributions to influence the government’s policy. The equilibrium allocation deviates from the socially optimal decision, leading to slower economic growth and decrease in social welfare. It is shown, however, that a democratic regime may be even more inefficient under certain assumptions. Democracy in poor countries may be harmful for economic growth, since the majority of population is likely to vote for an increase in current consumption that not only crowds out investment but also shifts factors of production from the manufactured sector generating endogenous growth.

Larisa Zaitseva Title: Performance persistence of Russian mutual funds Project: Mutual funds Supervisor: Alexei Goriaev Abstract: In order to form efficient portfolios, investors need to forecast future asset returns. If we consider mutual funds, the forecast of their future performance can be based on their past performance. To carry out such analysis we should explore whether financial results of mutual funds persist from period to period. Then the strategy of “chasing winners” can be used to beat the market. The purpose of this paper is to examine the phenomenon of performance persistence of Russian mutual funds by using different modeling approaches. We are going to use a variety of performance measures. To examine performance persistence of mutual funds we will apply different methodology. Firstly, we will construct portfolios of mutual funds. As we have daily data on mutual fund returns, it allows us to consider estimation and evaluation periods of different length. Secondly, we will perform some nonparametric tests, for example test, based on contingency tables. Finally, we will run Fama-MacBeth cross-sectional regressions to estimate the influence of fund characteristics on performance. The suggested results will help us to understand whether investors can earn abnormal returns by investing in past winners in Russia.

NES Annual Report 2005-2006 68 Nikolai Zak Title: The Mysterious Market of Drugs and Vaccines Project: Topics in institutions and microeconomics Supervisors: Andrei Bremzen, Anton Suvorov Abstract: We study the markets of drugs and vaccines considering monopolistic and duopolistic cases. We find that in the monopolistic situation the choice of the type of medicine to produce depends on the information about the risk types and possible harms. If there are two firms in the market, one producing vaccines and the other producing drugs it turns out that in most cases the only equilibrium involves zero prices. However when the drugs do not eliminate all the harm of the disease (or produce negative side effects) the equilibrium profits can be positive, and, moreover, the equilibrium profit of the drug firm can be negatively correlated with the quality of the drugs! The vaccine firm may earn more in the equilibrium while it would earn less in the monopolistic case. If we assume in addition that the firms can affect side effects of their medicaments, then the equilibrium side effects from drugs are positive. If there is a nonzero lower bound for the side effects produced by vaccines the situation changes and the equilibrium side effects produced by drugs can be minimal possible (e.g. zero). Moreover, we provide an example when the shift of technology which affords to reduce the side effects from vaccines leads to lower consumer surplus and social welfare in the equilibrium. We also consider the behavior approach when people underestimate the harm from the disease.

Anastasia Zakolyukina Title: Politically Connected Firms: Effect on Bankruptcy Project: Dictators and Oligarchs Supervisors: Sergei Guriev, Konstantin Sonin Abstract: The master thesis examines the effect of political connections on the outcome of a bankruptcy procedure. The sample of bankruptcy cases is under investigation. Russian bankruptcy law provides arbitration judges with discretionary power not to follow the will of creditors to impose external management or to liquidate the debtor. We argue that presence of political connections will increase the probability of external management initiation in order to gain time and resources to turn the case in politician’s favor. We define political connections in narrow sense: as for a director general or a member of an executive board to be a deputy, a minister, a governor on city, regional or federal levels.

Alexandr Zykov Title: About stability of monetary equilibriа Project: Imperfect Information and Bounded Rationality with Applications to Macroeconomic Dynamics Supervisor: Alexei Deviatov Abstract: The feature of most of random-matching models is that monetary equilibria fail to be expectationally stable. Therefore, even though fiat money can have value, monetary exchange is fragile – a slightest coordination failure necessitates its collapse. We suggest that rational expectations of agents may be responsible for this outcome. Thus, we adopt a bounded rationality model. For example, expectatons may be formed according to classifier system, whose evolution can be modelled using a standard genetic algorithm. We think that such expectations will change the situation in opposite direction: monetary equlibria become stable, whereas non-monetary ones become unstable. Besides, we conjecture that selective evolution of rules will work in a similar way to the utility maximization problem, and shall yield the socially optimal outcome. We plan to produce numerical examples in order to illustrate our conjecture.

Daria Kaygorodtseva Title: Option valuation of claims on petroleum leases in Russia Project: Analysis of Russian Energy Markets Supervisors: Oleg Eismont, Sergey Chernavsky Abstract: This year is going to become the turning point for the Russian petroleum legislation. In 2006 the law, which secure the firms right to participate in lease auctions should be implemented. This change may boost the demand for effective valuations of leases for oilfields. Nowadays, evaluation of oilfields is regularly carried out by means of discounted cash flow approach (DCF). This method gives estimates, based on unobservable variables using

NES Annual Report 2005-2006 69 predetermined statistical distributions. Since DCF method is extremely sensitive to the value of predicted variables firms may have different assessments of future distribution, so this may lead to divergent valuations. The purpose of the paper is to estimate the lease value as an option on oil company’s future capital investment and compare the results with DCF outcome. The advantage of option valuation approach is that it uses observable variables which make the estimations of different agents comparable. Besides, management flexibility of the company may be taken into account. Model of petroleum lease valuation basis on option pricing techniques, combined with the general equilibrium model is also presented.

Alexandr Kalenik Title: Application of scoring models for increasing effectiveness of internet credit systems Project: Trend of the Banking Sector in Russia and Bank Ratings V Supervisors: Anatoly Peresetsky, Alexander Karminsky Abstract: Development of effective internet credit systems is one of the priorities of banking system in Russia as an integrated part of world banking system. One of the problems that prevent development is adverse selection arising between such internet credit system participants as merchants and buyers. Due to rules set by international regulators such as VISA and MasterCard Associations credit cards owners are not personally liable for credit card non- present fraud whereas merchants are responsible for all costs incurred. At the first part of this work internet credit system is briefly reviewed and merchant-customer problem is formulated. Then reject inference with nonignorable missing data approach is used for investigating possibility of applying scoring models for predicting probability of fraud. Scoring factors are determined using expert opinions and quantitative estimations are based on available set of data about internet credit card payment transactions. Using extensive testing procedures it was shown that application of fraud scoring model may increase effectiveness of internet credit system.

Georgy Kartashov Title: Economic growth and institutional quality in resource oriented countries Project: Resource Abundance, Globalization, and Economic Development Supervisors: Victor Polterovich, Vladimir Popov Abstract: According to the Mehlum et. al (2005) model, the effect of institutions and natural resources on GDP is not well-defined. There is a threshold function depending on which economy is in one of the two regimes: productive and grabbing one. In a grabbing regime, resources have a negative effect on growth whereas institutions have a positive effect; in the productive regime, resources have a positive effect but institutions have no effect at all. Mehlum et. al (2005) test their model predictions empirically. However, the functional form employed does not fully capture the way institutions and resources affect economic growth as suggested by the model, and it is assumed that threshold function depends only on institutions. The empirical investigation confirms the theory. This master thesis revisits Mehlum et al’s (2005) model of the effect of natural resources and institutions on economic growth, suggesting the existence of two separate economic regimes: productive and grabbing. The authors conduct more detailed empirical tests of Mehlum’s model: first, the threshold function depends on resources and institutions (as is assumed in the model); second, a new specification more fully captures the effect of institutions and resources on growth as predicted by the theory. The new specification is a two-regime threshold regression model where the threshold is also estimated. We argue that the model’s predictions are fully confirmed in a grabbing regime and only partly in a productive one. We also present test of non-linearity of the model. Non-linearity hypothesis is not rejected. Finally, we conduct a case-study of Russia analyzing the possibility of a resource curse.

Sergey Kovbasyuk Title: Specific investments and marriage legislation Project: Topics in institutions and microeconomics Supervisors: Andrei Bremzen, Anton Suvorov Abstract: Renegotiation option negatively affects efforts exerted by parties in a bilateral relationship. Formal marriage can be considered as mechanism to reduce these opportunistic incentives. A simple model of marriage as a commitment device developed in the paper shows that making divorce procedures more costly (complex) may increase relationship specific investments in marriage thereby altering payoffs to the parties. However, for some individuals it reduces attractiveness of formal marriage. The model shows that relatively high individual costs of investments are associated with sharper response to increase in

NES Annual Report 2005-2006 70 costs of divorce, which is in hand with empirical findings for the US. Introduction of a menu of marriage forms may increase the number of marriages and the amount of relationship specific investments in a marriage. Under certain conditions on the parameters menu of marriage options improves the average payoff in the society.

Iana Kovrigina Title: On the stability of monetary exchange Project: Imperfect Information and Bounded Rationality with Applications to Macroeconomic Dynamics Supervisor: Alexei Deviatov Abstract: The feature of most of random-matching models is that monetary steady states fail to be expectationally stable. Therefore, even though fiat money can have value, monetary exchange is fragile – a slightest coordination failure necessitates its collapse. It is suggested that rational expectations of agents may be responsible for this outcome. Thus in this paper agents form their expectations in other way. To be exact, expectations will be formed according to the `rule of thumb` that can be modeled with the use of replicator dynamics. Such expectations will change the situation in opposite direction: monetary steady states will become stable, and unmonetary steady states will become unstable. Also a sufficient number of computer simulations will be done to provide some general insights about dynamics.

Irina Kuznetsova Title: Industrial Demand for Natural Gas in Russia Project: Analysis of Russian Energy Markets Supervisors: Oleg Eismont, Sergey Chernavsky Abstract: In the Master’s Paper the industrial demand for natural gas by different industries in Russia is estimated. The results of this work might have important implications for both governmen policies, affecting the use of energy and capital, and industrial consumers of natural gas. These results are also very significant because the estimations were made for all main industries in Russia. Thus, the perspective of development for different industries in Russia can be determined. Data from 1999 to 2004 were used in estimations. Industrial output data for years 1999-2004 are available from Goskomstat. Natural gas consumption data are available from other sources. Thus, the panel data for different industries in different regions are used in the model. The model of G. Gowdy used for estimating the industrial demand for natural gas in New York State is the basic model in this work.

Alexey Kushnir Title: Problem of Collective Action in Revolutions Project: Dictators and Oligarchs Supervisors: Sergei Guriev, Konstantin Sonin Abstract: It appears that many articles about collective action in revolutions touch upon only empirical investigations and most of them are pure descriptive. Their aim is rather not to examine the problem, but present facts and their possible sociological origins. Only few works examine this question using a game-theoretic framework. This paper builds a model using two kinds of benefits as the main incentives for people to participate in such movements. The first one is benefits from citizens’ influence on the type of the regime which would be established in case of success revolution. The second type of benefits, leadership benefits, can be received by people who organize revolution movements. The prime goal of the model is to analyze the origins of the revolution group creation and the problems of further coalition building and breakup.

Anna Lavrentieva Title: Comparative analysis of uniform and “pay-as-bid” auctions Project: Network Markets for Homogeneous Goods Supervisor: Alexander Vasin Abstract: Until recently all decentralized electricity markets have been organized as uniform auctions. Now, in view of restructuring in many markets, it is paid a considerable attention to different auction designs. The purpose of the paper is to examine suppliers’ equilibrium bidding behavior in uniform and “pay-as-bid” auctions. The equilibrium outcomes in these auctions formats are compared in the framework of asymmetric duopoly model with perfectly inelastic demand. Unlike the existing research which only deals with price bids of suppliers, the present work analyses the equilibrium outcomes

NES Annual Report 2005-2006 71 when suppliers can bid both price and volume. Such change of the auction rules is crucial for the results of the analysis.

Ivan Lazarev Title: Political Institutions, Industrial Structure, and Economic Performance Project: Dictators and Oligarchs Supervisors: Sergei Guriev, Konstantin Sonin Abstract: The evolution of industrial structures along with other economic processes is prone to be influenced by political institutions in countries. Inefficient industrial structures may become desirable for interest groups if they provide conditions favorable for rent-seeking behavior. On the other hand, a politician who values power and fears removal has to care about the social welfare. The paper examines how the design of political system affects the incentives of a ruler and, therefore, the market structures and economic performance in the country. In a dynamic framework, we investigate the role of such factors as initial conditions, term limits and political accountability and provide the conditions under which inefficient structures are likely to become predominant in the economy.

Olga Lampe Title: The distribution of wealth, social status and economic performance Project: Incidence and Duration of Poverty in Russia Supervisor: Irina Denisova Abstract: In recent years the idea of status-seeking behavior has been exploited in numerous theoretical models. Most authors simply assume that there is a relation between the position of a person in the society and her involvement in competition for higher status. The aim of this paper is to estimate empirically whether there is a relationship between a social status and strength of status-seeking motive in the economic performance of an individual and how it is look like. For that purpose the empirical model is developed, based on the theoretical framework by Stark (2004) and RLMS panel for1994-2004. The main idea is to construct a index of social status deprivation and a proxy for the status- seeking performance and to find a relation between them. A lot of attention is paid to the determination of the reference group, or the group of people, whose characteristics may influence the economic decision of each other. The hypothesis, which is discussed in the paper, is that the dependence between the status and the performance is concave with a peak at the medium values of status deprivation, contrary to the assumptions of many theoretical models, in which the relation is supposed to be monotonic.

Vladislav Leontiev Title: Models of competition with application to the network markets of homogeneous goods with three nodes Project: Network Markets for Homogeneous Goods Supervisor: Alexander Vasin Abstract: Master thesis studies Cournot competition for the network market of homogeneous goods. Such network structure is typical for the electricity and gas markets. The purpose of this paper is to develop a game-theory model and to study problems of existence, uniqueness and computation of Nash equilibrium for this model. In this paper the simple model of market with three nodes, negligible transmission loss per unit of the good and constraints on maximal amount of the transmitted good will be examined. Our study shows that there exist three possible types of Nash equilibrium: common market equilibrium, equilibrium with active constraint on cut set of single node and Nash equilibrium with active constraints on every transmission line. Moreover, for some cases these equilibriums can co-exist concurrently.

Andrey Lesnikh Title: Executive power and administrative barriers to small business development Project: Economics of Education Supervisor: Valery Makarov Abstract: This paper try to establish relations between different parameters of local executive power and administrative barriers to small business development. The data on administrative barriers to small business development is based on the results of a series of monitoring projects carried out by Centre for Economic and Financial Research at New Economic School. The data on the executive power were got from different sources and include biographical data of the region heads, the results of elections etc. In this paper we

NES Annual Report 2005-2006 72 construct different models and test some hypotheses about influence of some executive power parameters on small business development. The results of the paper enable to infer about influence on single enterprises as well as on regional economy as a whole.

Dmitriy Lisitsyn Title: Optimal Patent Protection and Long-run Growth Project: Imperfect Information and Bounded Rationality with Applications to Macroeconomic Dynamics Supervisor: Alexei Deviatov Abstract: It has been long recognized that absence of patent rights may impede incentives to innovate and, thus, this may depress economic growth. However, when innovations are sequential and complementary there is a threat that too much patent protection may depress innovation causing economic growth to slow down. The purpose of this paper is to look more closely at situations when incomplete enforcement of patent rights becomes socially optimal and helps to mitigate overprotection implied by full enforcement of patent law. We use the two-period model to show that incomplete enforcement may be optimal if there is incomplete (asymmetric) information and/or rigidity in the legislative system. Then we generalize this model for the case of discrete time and infinite horizon. The paper argues that under certain conditions incomplete enforcement of patent right may positively influence long-run economic growth. Although the idea basically contradicts conventional wisdom that full patent enforcement is a must, it appears to be quite natural in a schumpeterian world with strong “creative destruction” of patents and high enough product diversification.

Irina Luschevskaya Title: Shake-out in IO via aggressive advertisement policy Project: Shake-out in IO Supervisor: Grigory Kosenok Abstract: The problem of characterizing an optimal advertising strategy is one of central issues in the field of marketing policy of the firm. One of the most interesting questions is whether one firm with strong market position can change the industry structure implementing an aggressive advertising strategy. This work addresses the problem of definition of leading firm’s optimal level of advertising in a market where it exists together with a fringe of small firms. The purpose of this paper is to explore the process of shake-out in such industry caused by leading firm's advertisement pressure on the competitive fringe firms. The model is assumed to be time-discrete with fringe firms making their decisions about exit every period. The solution of the model is a result of application of the theory of repeated games in discrete time together with Subgame Perfect Nash Equilibrium concepts. It was found that in the framework of this model variety of shake-out policies exists. The structure of a specific policy depends on model parameters.

Iya Malakhova Title: Modeling of ratings of Moody’s and S&P international rating agencies, including some Russian banks Project: Trend of the Banking Sector in Russia and Bank Ratings V Supervisors: Anatoly Peresetsky, Alexander Karminsky Abstract: In this paper the new data is used for creating models of the bank ratings of international rating agency Moody’s. The influence of agency’s rating methodology is examined and the existence of negative trend checked. Econometric models of ratings are developed basing on bank’s publicly available financial indicators. On the basis of models some insights were made on the way the agency estimate the rating of a bank. Also an attempt will be made to develop a model of rating changes and the changing of rating for Russian banks is examined.

Andrei Malenko Title: Oligarchic Capitalism and Financial Development Project: Dictators and Oligarchs Supervisors: Sergei Guriev, Konstantin Sonin Abstract: In most countries around the world, large corporations are usually controlled by few very wealthy individuals or families. However, whether large concentration of control leads to financial development or vice versa, remains an open question. In this paper we present a political economy model of investor protection in countries that can be characterized by an

NES Annual Report 2005-2006 73 “oligarchic capitalism” pattern. We consider an entrepreneur’s decision of going public in such environment and the market equilibrium. The model predicts that large concentration of control over major corporations might be conducive to weak investor protection resulting in low capitalization of firms, few IPOs and low dividends paid by a typical firm. It also sheds light on capital structure decisions made by firms in oligarchic countries. We illustrate the model using examples from several countries. Juriy Malyavkin Title: Money demand and currency substitution in Russia Project: Monetary and fiscal policy in the resource-base economy Supervisor: Kirill Sosunov Abstract: The large share of assets denominated in foreign currency in resident savings is a distinguishing feature of the Russian economy. The aim of this paper is to investigate the impact of this phenomenon on the Russian monetary system. For the period from January 1999 to November 2005 a money demand function for broad money aggregate that includes savings denominated in native and foreign currency is estimated and main factors that influence the choice of the share of assets denominated in foreign currency in savings are identified. It was found that money demand in Russia does not depend on the deposit rate and the key factor that determines the choice of the share of savings denominated in foreign currency is ruble devaluation rate.

Dmitriy Maroushkevitch Title: Dutch Desease: Evidence from Russia Project: Causes of Resource Dependence of the Russian Economy: the "Dutch Disease" or Insufficiently Developed Institutions? Supervisor: Natalia Volchkova Abstract: Russia is one of the world’s primary producers of oil and gas. Crude oil, oil products, and gas together account for roughly 50 percent of Russia’s total export revenues, and for some 20 percent of Russia’s Gross Domestic Product. High world market oil price led to a strong capital inflow in Russia from the mid-1999. However, in many cases of European countries, high revenue of extractive industry as a result of high prices may lead to ‘de- industrialization’. Such effect sometimes referred to as ‘Dutch Disease’. This paper will be devoted to diagnosing Russia for Dutch disease. In the early 90s export of oil and gas developed rather fast. Using macroeconomic data for the last 15 years the analysis of basic Dutch Disease symptoms will by made. Russia has the largest territory among other resource-dependent countries, that is why Dutch Disease is going to by analyzed using regional data of Russia. At the end of this paper econometric model will by constructed and main Dutch Disease symptoms will by tested using this model.

Olga Martynova Title: Tacit collusion and shake-out Project: Shake-out in IO Supervisor: Grigory Kosenok Abstract: There are several key forces that would effect the industry monopolization issue. First, dominant firms have an incentive to capture the whole industry without sharing the market with competitors. In price policy means this would require temporary cutting price. Second, there is a free-rider problem that creates confrontation with a shake-out process. Dominant firms may have an incentive to stay out of an agreement to shake-out small firms in order to free-ride on the attempts of the other large firms to keep prices low. It is still unexplored what dominant firms choose in a tradeoff between shaking-out small firms from the industry and collecting momentary profits. Thus, the purpose of this paper is to understand the equilibrium evolution of industry concentration within the context of a model that incorporates these effects. The structure formation can vary depending on the problem parameters, such as demand characteristics, time discount rate, etc. The values of parameters when the collusion might occur, the desired level of competition for the leaders and the shake-out period are now the issues under consideration.

Egor Matveyev Title: Monitoring Structural Change in a Model Based on a Set of Conditional Moment Restrictions Project: Structural breaks and structural change in financial and other series Supervisor: Stanislav Anatolyev

NES Annual Report 2005-2006 74 Abstract: In this paper we model financial returns based on a set of conditional moment restrictions as proposed in Meddahi, Renault, and Werker (2006, Economics Letters, 90, 200-204). One of important features of this model is that it takes into account the irregularity of ultra-high-frequency data. The main purpose of this research is to adopt a retrospection aspect of monitoring technique in this context. Due to large samples we employ only the moving estimates test. Our approach is illustrated on the IBM and Gazprom trades data. We find that models for both data sets show nonstable relationship over the chosen period of time.

Ekaterina Minenkova Title: Modeling of Bank Ratings of Moody’s Investors’ Service Rating Agency Using Macroeconomic Indicators Project: Trend of the Banking Sector in Russia and Bank Ratings V Supervisors: Anatoly Peresetsky, Alexander Karminsky Abstract: The purpose of this work is to develop adequate models for Moody’s Investors’ Service international scale bank ratings. The study analyses the quantitative determinants of bank creditworthiness - macroeconomic indicators and Moody’s Investors’ Service sovereign ratings as well as fundamental ratios based on public financial information being indicators of bank profitability, efficiency, asset quality, capital adequacy and liquidity. The paper studies the impact of the macroeconomic variables in terms of predictive accuracy. One more issue is the verification of negative trend in Moody’s Investors’ Service ratings. In addition, an attempt will be made to propose models taking into account the selection mechanism between investment grade and speculative grade. The study provides a forecast of the ratings to be assigned to some Russian banks.

Vladimir Mnogoletniy Title: Mutual funds: Fund flows and investor sentiment Project: Mutual funds Supervisor: Alexei Goriaev Abstract: Although the Russian mutual fund industry has experienced rapid growth during recent years, the role of the industry is minor comparing to developed countries. Because of this steady growth in the future is expected and it makes the industry research still more actual. Using daily and weekly data, we investigate relationship between flows into mutual funds and their returns. In particular, we test the feedback trading hypothesis according to which past fund performance affects current flows. We find that the mechanism that determines flows into the whole industry differs from those for developed markets significantly. In particular, we reject feedback trading hypothesis for the Russian financial market both for daily and weekly data. There is only slight dependence of flows on market returns and macro variables for stock, bond and mixed types of funds and we suggest that the flows are determined rather by unobservable variables than by used factors. These variables obviously have lesser impact for developed markets than for the Russian mutual fund industry; possible one of them is the population knowledge about the opportunity of investing in the financial market via mutual funds. Also we construct on the basis of fund flows a simple index of investor sentiment which reveals investor expectations about future market dynamics.

Dmitriy Muravyev Title: Do Russian mutual funds overperform the market? Project: Mutual funds Supervisor: Alexei Goriaev Abstract: The boom of the stock market has stimulated rapid growth of the financial management industry in Russia. This paper investigates two major questions about Russian equity mutual funds over the 1999 to 2005 period. First, we examine whether managers of funds with high Jensen alphas (i.e., risk-adjusted returns) are simply the luckiest in a large pool of managers, or they possess genuine stock- picking skills. Following Kosowski et al. (2005), we bootstrap the joint distribution of alphas across all funds. This approach reveals that a lot of managers have superior performance. However, as we show through simulations with synthetic stock portfolios, this effect is mostly driven by the generic features of the Russian stock market rather than managerial skills. To check the robustness of the results, we use different extensions of the basic market model as well as different synthetic portfolio simulation procedures.

NES Annual Report 2005-2006 75 Second, we study whether any of well-known performance measures (Sharpe ratio, Jensen alpha, Morningstar rating, etc.) persist over time and can help to select funds with superior performance in the future. To achieve more robust results, we use filtering techniques similar to Spiegel (2004).

Ksenia Panidi Title: Why Do We Avoid Doctors? The View from Behavioral Economics Standpoint Project: Topics in institutions and microeconomics Supervisors: Andrei Bremzen, Anton Suvorov Abstract: Some people visit doctors very rarely because of a fear to receive negative results of medical inspection, others prefer to resort to medical services in order to prevent any diseases. Recent research in the field of Behavioral Economics suggests that human’s preferences may be significantly influenced by the choice of a reference-point. It seems natural to think that the same is true for health consumption. This paper considers a model with reference-dependent utility that allows to characterize how people choose the optimal level of health care and the frequency of visiting doctors. The study focuses on the effect of personal attitude to health care and loss-aversion as potential factors that may lead to under- or over-consumption of medical services. The study comes to a conclusion that people may delay visiting doctors till the moment when their health reference point becomes low enough.

Elena Pastukhova Title: Efficiency and Risk in Russian Banking Project: Trend of the Banking Sector in Russia and Bank Ratings V Supervisors: Anatoly Peresetsky, Alexander Karminsky Abstract: In many countries research devoted to estimation of X-inefficiency of banks and development of methods to decrease inefficiency are held. Identifying the factors, which account for inefficiency, allows to reduce costs (or raise profits), as well as, to illuminate the most vulnerable segments of the banking system. But for the incompleteness of information there were only few such studies in Russia. Moreover, there were no studies of bank efficiency that took into consideration risk-preferences. Similar research in other countries led their authors to ambiguous results. In this paper we estimate X-inefficiency of Russian banks with risk factors being taken into consideration and explore what factors account for differences in X-inefficiency among Russian banks.

Konstantin Petrov Title: Optimal foreign exchange accumulation by Central Bank of Russia Project: Analysis of Russian Energy Markets Supervisors: Oleg Eismont, Sergey Chernavsky Abstract: In this paper the optimal accumulation of foreign reserves under nominal rigidities is analyzed. Brief survey discusses the common models which describe the optimal monetary policy. Under nominal rigidities however Central Bank cannot facilitate both money market equilibrium and natural domestic output. The policy choice of Central Bank is formulated by tradeoff between keeping domestic output at its natural level and spending windfall export revenues. The optimal policy of Central Bank is contingent of parameter values of a model that describe the economy. In this paper the unknown parameter values of the domestic demand and money demand are empirically estimated. Based on the estimates optimal policy of the Central Bank is suggested and welfare effect is estimated.

Ivan Potekhin Title: The Role of Attitude to Risk in the Migration Decision-Making Project: Incidence and Duration of Poverty in Russia Supervisor: Irina Denisova Abstract: In my master thesis I suggest theoretical model which explains the intensity and the structure of rural-to-urban migration. The key feature of my analysis as opposed to existing literature is that agents differ with respect to risk aversion. My model demonstrates that people with different attitude to risk choose to work in different regions even though they face the same employment alternatives. This variation comes from the fact that workers with different attitude to risk differently evaluate the same uncertainty of future employment. The model sheds the light on the empirically observed structure of the rural-to-urban migration. I also provide evidences that assumptions and predictions of my model are supported by the empirical research in this field.

NES Annual Report 2005-2006 76

Konstantin Pravednikov Title: Competition of political parties in different election conditions Project: Dictators and Oligarchs Supervisors: Sergei Guriev, Konstantin Sonin Abstract: In the paper we try to take a look at the competition of several political parties in the environment of elections. More specifically, we build a model that describes the behavior of two parties competing on several election districts. Every party has some initial endowment and spends it to explore the preferences of their electorate; we look at the equilibrium of the competition and explain some phenomena observed on real elections. Besides that, we compare majority voted and proportional voted systems from the maximization of social welfare viewpoint.

Tatyana Prokina Title: Consumer loyalty & shake-out Project: Shake-out in IO Supervisor: Grigory Kosenok Abstract: It is well known that the degree of consumer loyalty to a firm plays a significant role for profits collection of the firm and as a result it determines the viability of the firm in an industry. Typical economic analysis predicts that any leading firm has a tendency to get the highest degree of the market control. The purpose of the paper is to study the influence of the degree of consumer loyalty on exit of non leading firms from the economy, where one leading firm is present in the industry. The model includes N small competitive firms and a continuum of consumers. The leading firm is interested in capture of larger share of the market in order to collect more profits in the future. The loyalty implies that any consumer is “sticky” to the product of the same firm when the price of other firms’ product is not too low. This market feature may be crucial for industry to be monopolized. So that under certain market environment the dominant firm might stop a removal of fringe firms and enjoy the market share it has. According to the behavior of the dominant and fringe firms three types of shake out are taken into concideration: 1. Natural shake out - fringe firms compete between themselves to define who will stay at the market and who will leave and the leading firm does not make any temptation to eliminate fringe firms. 2. Unpremeditated shake out - big firm looks forward only to maximize its profit. So small firms can not bear the competition and some of them are obliged to leave. 3. Purposeful shake out - the leading firm decides to partly or wholly give up today's profits in order to make more in future. What it does is producing at the very level when obtained equilibrium price make some of the fringe firms leave the market. For each type there is an attempt to analyze the impact of consumer loyalty on the behaviour of the competitors.

Bella Rabinovich Title: Russian mutual funds styles Project: Mutual funds Supervisor: Alexei Goriaev Abstract: Mutual funds are one of the largest financial institutions in the world, with current assets over $10 trillion. The very successful history of their growth in the developed countries lets us suspect that mutual funds will take up a significant place in the Russian financial market. In this paper, we investigate the styles of mutual funds, i.e., the typical strategies used by fund managers. We will classify Russian mutual funds into different styles, using the data on their daily returns from 1999 up to now. In other words, we will divide the funds into relatively homogenous groups, which will help us to predict future cross- sectional dispersion of the fund returns. The methodology will be based on different approaches. Firstly, funds will be classified using their exposures (betas) with respect to macroeconomic factors or using characteristics of their portfolios (e.g., industry weights). Secondly, we will apply the nonparametric cluster analysis proposed by Brown and Goetzmann (1996). Finally, dynamic estimates of the exposures will be found using the OLS with rolling window and Kalman filter.

NES Annual Report 2005-2006 77 Alexander Radaev Title: Multiple large shareholders as a signaling device Project: Corporate governance and optimal design of corporate law in emerging markets Supervisor: Sergey Stepanov Abstract: This thesis is devoted to the analysis of corporate governance in firms with several large shareholders (blockholders). The widespread existence of such firms is documented for a number of countries. Multiple blockholders can be an instrument of mitigating the agency problems in firms with concentrated ownership. At the same time, multiplicity can lead to costly conflicts of interests and deadlocks in decision making. While these benefits and costs are recognized by the existing literature, empirical evidence on the role of multiple blockholders is mixed and the theoretical literature is very scarce. We build a theoretical model in which ownership structures with multiple blockholders arise endogenously as a response to asymmetric information about the ability of blockholders to extract private benefits. We analyze how equilibrium depends on the characteristics of a legal system which affects the cost of the private benefit extraction by controlling owners.

Andrei Rachkov Title: Interaction between a President and Oligarchs in Weakly-Institutionalized Societies Project: Dictators and Oligarchs Supervisors: Sergei Guriev, Konstantin Sonin Abstract: In transition from planned economy to a market economy or just in weakly institutionalized countries oligarchs may have incentives to engage in rent-seeking, which may lead to the detriment of judicial system and property rights. However, rent-seeking activities of oligarchs may be focused on themselves and when returns in the economy are high it may be beneficial for them to reach such a situation that nobody pursues rent- seeking. To this end, oligarchs may entitle with power a strong president, who would implement full protection of property rights and monitor that all oligarchs engage in production, not rent-seeking. Nevertheless it’s often impossible for an elected president to resolve commitment problem. Unless a president is supported by a pivotal voter, he/she may also pursue rent- seeking activities, especially taking into account his power and the fact that institutions may have already deteriorated. Therefore, a president may have incentives to engage in collecting rent from oligarchs, which should be taken into consideration in their initial choice.

Nikita Roketskiy Title: Optimal Term Limits Project: Dictators and Oligarchs Supervisors: Sergei Guriev, Konstantin Sonin Abstract: This paper examines the influence of various factors on executive’s electorial campaign financing. The signaling model of candidates’ and incumbent’s behavior is considered. It is based on the assumption that candidates differ from each other, but ex ante these differences are not observable by electorate. The model considers the electorial campaign spending (particularly advertising) as “burning” money activity. The purpose of “burning” money is to signal about candidate’s type. In particular, the model provides a positive analysis of the influence of term limits on the magnitude of campaign finance (advertising). It also shows how term limits and possibility for credible report of candidate’s type (advertising) influence the future winner’s efforts while holding a post. The obtained results can be used as the arguments in examination of election law’s design.

Ruslan Sadriev Title: Hostile takeovers under weak legal institutions Project: Corporate governance and optimal design of corporate law in emerging markets Supervisor: Sergey Stepanov Abstract: The master thesis studies the impact of corruption on the efficiency of hostile takeovers and the choice of corporate governance by a controlling owner under a potential takeover threat. This issue is very important for countries with weak legal institutions, such as Russia, where the use of illegal methods in hostile takeovers is widespread. The possibility of bribing courts or fabricating court decisions or shareholder registers, etc., facilitates a

NES Annual Report 2005-2006 78 takeover. Since not only inefficient but also efficient takeovers become easier to implement, the total effect of corruption is ambiguous. Even if corruption contributes to a greater extent to ex-post inefficient takeovers, there is an additional effect: greater likelihood of a raider’s attack may stimulate the controlling owner to practice “good” corporate governance to prevent or avoid a takeover. We develop a theoretical model that allows to analyze how corruption as well as the share of a controlling owner impact on the efficiency of takeovers and the choice of corporate governance by the controlling owner.

Vadim Safonov Title: Measuring Timing Ability of Russian Mutual Funds Project: Mutual funds Supervisor: Alexei Goriaev Abstract: Russian mutual fund industry has shown substantial growth rates both in the number of funds and in assets under management. In spite of the obvious benefits of investing via mutual funds it is not clear whether fund managers add value to their investors. The objective of our research is to find out whether Russian mutual fund managers have timing ability, i.e. the ability to effectively rebalance their portfolios. The analysis is based on the standard market model adjusted for the presence of timing ability. Using fund and market returns at weekly and daily frequencies in 1999-2005, we carry out several classical timing tests, such as Treynor and Mazuy (1966) and Henriksson and Merton (1981). To measure timing ability at intra-day frequency, we employ methodology similar to Goetzmann, Ingersoll, and Ivkovic (2000). We construct variables based on intra-day benchmark index data that allow us to identify intra-day market timing ability using daily fund returns. This research will contribute to the existing literature, as at the moment there is no unambiguous evidence that fund managers have timing ability either in the US or in Russia.

Loubov Startseva Title: Diversification of economy in resource-abundant countries Project: Causes of Resource Dependence of the Russian Economy: the "Dutch Disease" or Insufficiently Developed Institutions? Supervisor: Natalia Volchkova Abstract: The purpose of this paper is to examine how diversification of economy depends on the resource abundance in the country, and what the influence of diversification on the growth of the economy is. Based on the paper of Imbs and Wacziarg (2003), there have been proposed measures of diversification and there has been made a regression analysis to determine relation between diversification indexes and the volumes of oil production for Great-Britain. An analogous analysis for Norway and Brazil is in progress. It is important to recognize whether this kind of relation between diversification indexes and the volumes of oil production is dependent on the level of country’s development. Also there will be made a cross-section analysis to reveal the impact of diversification on the growth of national economy. Based on the results the attempt will be made to analyze how the growth of oil sector influences on the growth of the national economy.

Elena Suslova Title: Human capital underdevelopment and the “resource curse” Project: Causes of Resource Dependence of the Russian Economy: the "Dutch Disease" or Insufficiently Developed Institutions? Supervisor: Natalia Volchkova Abstract: One of the surprising features of modern economic growth is that countries with abundant natural resources tend to grow less rapidly than natural-resource-scarce countries. Modern economic literature gives a vast number of reasons to explain this phenomenon. The purpose of this paper is to examine human capital underdevelopment as a channel for the resource curse. Specifically it is an attempt to answer the question of whether industrial sectors that are relatively more in need of sophisticated human capital develop disproportionately slower in countries with abundant natural resources.

NES Annual Report 2005-2006 79 Alexey Tarasov Title: Package Size and Package Quality Project: Topics in institutions and microeconomics Supervisors: Andrei Bremzen, Anton Suvorov Abstract: This paper examines the effects of package sizes and package quality, from the consumer and producer sides. In particular, it is shown how producers can compete by setting sizes and quality of packages and how these tools can be used for discrimination. Different competition models are used for these purposes. For example, if the technology of producing the package improves, then perfectly competitive producers will produce more goods and in higher quality packages. We also trace the way the quantity of the package changes when new producers enter the market. From the side of the consumer we analyze the effects goods with a price schedule as a marginally decreasing function of quantity have on optimal choice and the way consumers choose between discrete and continuous goods. As references, articles by Allenby et al “A Choice Model for Packaged Goods: Dealing with Discrete Quantities and Quantity Discounts”, Nahata et al “Package Sizes, Tariffs, Quantity Discount and Premium”, DeShazo and Saenz “Consumer Demand for Bundled Goods” are used.

Elena Trukhacheva Title: The role of home and foreign prices on tradables and nontradables in RER fluctuations in Russia Project: Monetary and fiscal policy in the resource-base economy Supervisor: Kirill Sosunov Abstract: The aim of this work is to analyze the factors responsible for RER appreciation in 2000- 2005 years in Russia. Particularly, this study empirically evaluates how closely real exchange rate movements are related to movements in the relative price of nontraded to traded goods and to changes in the relative prices of tradable goods across countries in the data. The paper investigates the quarterly sample on Russian data in the period of RER appreciation due to high prices on oil: 2000.Q1- 2005.Q2. The macro data on price indices, GDP, RER etc. are taken from the official Goskomstat statistics. The central tool of analysis is the variance decomposition. The main hypothesis that is tested is the degree of violation of the law of one price. The analytical papers of Ariel Burstein, Martin Eichenbaum, Sergio Rebelo and also the papers of Caroline Betts and Timothy Kehoe are considered as a basis for research approach in this study.

Yana Ukhaneva Title: How to sell Russian gas to Europe? Project: Analysis of Russian Energy Markets Supervisors: Oleg Eismont, Sergey Chernavsky Abstract: Russia is one of the main suppliers of natural gas to Western Europe, and this allows the country to earn some rent from gas export. But the pipeline passes through Ukraine which is a monopolist on the gas transportation market and aims at gaining the corresponding profit. The problem is to determine how to increase Russian rent share. Two ways of gas transportation systems are considered in the paper. The first one corresponds to the trade system inherited from the Soviet Union. According to this system, Russia negotiates the gas price and volume which would be exported to Western Europe and then negotiates with Ukraine about transit fee for gas transportation. The second system assumes that Russia sells all exported gas to Ukraine which negotiates with European consumers the price and volume exported to Western Europe itself. It is shown in the paper that the second scheme allows Russia to earn considerably higher rent share.

Igor Khmel Title: Estimate of the Russian oil export function Project: Analysis of Russian Energy Markets Supervisors: Oleg Eismont, Sergey Chernavsky Abstract: Producing more than 10 percent of world oil, Russia is now a major player in the world oil market, while oil revenues constitute a significant share of government spending. Therefore it is important to understand how the national oil market operates and in particular, how the supply is formed. In spite of the significance of this problem, little attention has been given to its analysis in Russia. The majority of foreign models of the oil supply function were published after 1973-74 oil crisis.

NES Annual Report 2005-2006 80 The purpose of the MA’s thesis is to estimate the Russian oil export function. The monthly data or Russian oil export during 1999-2005 has been used. The following explaining variables have been used: world oil BRENT and URALS prices, domestic crude oil price, the value of the export tariff, GDP index of OECD countries, dummy-variables, that reflect taxes on mining minerals introduced in 2002 year, season factors, oil price trend. Linear, log-linear and logarithmic models have been used. The qualitative results, obtained in the paper, may be used for the analysis of the oil taxation reform in Russia, as well as to develop the long run strategies of the major oil producers.

Konstantin Chernishev Title: Patents and Innovation Race in the Pharmaceutical Industry Project: Topics in institutions and microeconomics Supervisors: Andrei Bremzen, Anton Suvorov Abstract: This work investigates how the presence of patent system influences the entry of new drugs and pharmaceutical innovation. Different approaches to constructing dynamic models of innovation in the patent framework are presented. The distinguishing features of pharmaceutical industry such as constant marginal costs of production, possibility to arrange the drugs according to their efficiency and presence of generic version of brand drugs are taken into account. Several models with different patent time and dynamic research efforts are considered. The hypothesis that under some conditions there may be an equilibrium in which the leading firm will overinvest in R&D right after new innovation has occurred is not supported by numerical solutions in discrete time. This work also shows that even under short patent length the situation may be similar to the Arrow’s replacement effect.

Egor Chistyakov Title: Democracy, natural resources and economic growth in panel regressions Project: Resource Abundance, Globalization, and Economic Development Supervisors: Victor Polterovich, Vladimir Popov Abstract: Negative influence of natural resources on economic growth and quality of institutions was found in several empirical works (Leite, Weidmann, 1999), (Bulte, Damania, Deacon, 2003). In recent works, however, the results have not been entirely confirmed (Stijns, 2005), (Alexeev, Conrad, 2005). Therefore the question of influence of natural resources on institutions still stays open. In this paper an empirical method of panel regression analysis will be applied to the matter. The method is advantageous compared with previously applied in two ways. Firstly, it allows using more data on both time and cross section dimensions. Secondly not only impact of natural resource stocks, but also impact of natural resource shocks on economic growth can be analyzed. In the paper both short term and long term effect of natural resources on economic growth will be analyzed. Influence of natural resources on economic growth in present of different levels of democracy will also be investigated. It may be expected that lower levels of democracy not always have negative impact on growth in resource abundant countries.

Olga Shatalova Title: Analysis of the Factors that Influence Banks’ Deposit Rates Project: Trend of the Banking Sector in Russia and Bank Ratings V Supervisors: Anatoly Peresetsky, Alexander Karminsky Abstract: The Master Thesis will be devoted to the analysis of banks’ deposit rates. There are several directions of the research. First, the dependence of the deposit rates on the banks’ records will be investigated. Since the law of the deposit insurance was introduced, it is interesting to examine whether it has influenced the way banks price their deposits. By placing a ceiling on the amount of possible depositor loss, deposit insurance should result in a lower risk for a depositor. However, this effect may be modified if either the insurance promise has low credibility or the moral hazard incentives generated by deposit insurance result in a greater probability of bank default. In this case the deposit rate may increase. Also, the pass-through of the market interest rate to the deposit rates will be investigated. Such research was carried out for banks in different countries, for instance, Belgium and Italy. The Master Thesis will examine how conditions in the interbank market affect banks’ deposit rates in Russia.

NES Annual Report 2005-2006 81 Ivan Shkrebela Title: What causes insurance companies to choose between separate and bundled insurance of related accidents? Project: Topics in institutions and microeconomics Supervisors: Andrei Bremzen, Anton Suvorov Abstract: This paper is an attempt to understand why companies on markets with different structure could insure accidents separately or in a bundle. Previous studies have underlined several reasons for bundling: complementarity of goods, economy of scope, price discrimination, negative correlation of agent’s valuations of goods in the market etc. However, this work shows that because of adverse selection on insurance market there could be other incentives for bundling insurance contracts. The purpose of the paper is to highlight distinctions of insurance marketing in terms of bundling.

Julia Shkurat Title: “The curse of natural resources” in a model with endogenous growth Project: Resource Abundance, Globalization, and Economic Development Supervisors: Victor Polterovich, Vladimir Popov Abstract: The paper will be concerned with influence of natural resources on the level and the growth rate of per capita income. The paper will be based on the article "A Hotelling Explanation of "The Curse of Natural Resources"(April, 2005) written by Boyce and Emery, in which using a two sector open economy the authors show that while resource abundance negatively influence the growth rate of per capita income, it raises the level of per capita income. Discussion of the effects of "Dutch disease" in the framework of the model does not change the main results. The purpose of this paper is to expand the model by adding an endogenous growth of productivity to take into account the externality of domestic production. This expansion allows to consider the technical progress without which flow of the resources influences only current production. But if we add endogenous growth then the flow of resources will affect not only today production but also all the rest. An attempt will be made to show that with endogenous growth resource abundance negatively influences both the growth rate and the level of per capita income.

Alexandr Shulzhenko Title: The analysis of connections between bonds and bank’s characteristics Project: Trend of the Banking Sector in Russia and Bank Ratings V Supervisors: Anatoly Peresetsky, Alexander Karminsky Abstract: The paper introduces the model for estimating the default probability of banks, based on their bonds quotes. Spread over the risk free government bonds is analyzed. The model shows the significant connection between default probabilities (incorporated in spread) and parameters of the bank as well as financial market characteristics. Giving the appropriate forecasts for the bank’s parameters the model allows forecasting the default risk premium which investors will demand for holding existing bank’s bonds as well as forecasting the demanded premium for new bonds issues.

Ekaterina Sherbakova Title: Estimation of household electricity demand in Russia Project: Analysis of Russian Energy Markets Supervisors: Oleg Eismont, Sergey Chernavsky Abstract: Reforming the electricity sector in Russia has been widely discussed among politicians and researchers in recent years. Originally the sector has been operating as a monopoly regulated by the government. However, world experience shows that transformation to market structure can substantially raise the sector productivity. Evidently, reforms in electricity sector will entail dramatic changes in price formation which consequently will have an effect on consumer welfare. Evaluating and analyzing the influence of the reforms on consumer welfare requires understanding of the relation between electricity consumption, electricity price and consumer income. This paper is devoted to the estimation of household electricity demand function in Russia. Modeling of consumer demand is based on utility maximization problem. Data is obtained from household survey NOBUS, conducted by Goskomstat in 2003. The effects of introduction of multipart tariffs on consumer welfare are considered. Finally, an attempt to construct optimal tariff structure for household sector is made.

NES Annual Report 2005-2006 82 Appendix 4: Summary of Research Projects, 2005-2006

1. Structural breaks and structural change in financial and other series Leader: Stanislav Anatolyev (NES)

The project is devoted to developing tools for analyzing stability of time series (such as testing for structural breaks, retrospection and monitoring) as pertaining to financial and macroeconomic data.

First, we develop and evaluate sequential testing tools for a class of nonparametric tests for predictability of financial returns that includes, in particular, the directional accuracy and excess profitability tests. We consider both the retrospective context where a researcher wants to track predictability over time in a historical sample, and the monitoring context where a researcher conducts testing as new observations arrive. Throughout, we elaborate on both two-sided and one-sided testing, focusing on linear monitoring boundaries that are continuations of horizontal lines corresponding to retrospective critical values. We illustrate our methodology by testing for directional and mean predictability of returns in a dozen of young stock markets in Eastern Europe.

Second, we introduce a sample revisions approach in monitoring – periodic restart of the monitoring scheme. We study asymptotic properties of the proposed mechanism, and apply it to testing for predictability of T-Bills returns and to examining the stability of U.S. industrial production. It is concluded that the sample revisions technique performs more evenly in applications than the existing ones.

Third, we investigate the tests for presence of structural breaks in non-standard situations and analyze their behavior via simulations. In particular, we weaken the assumption of an abrupt break, consider the case of a quick deviation, and discuss the case of non-simultaneous shifts in coefficients. We propose a simulation design for these cases and analyze the results given by simulations.

2. Topics in institutions and microeconomics Leaders: Andrei Bremzen (NES), Anton Suvorov (NES)

The project investigated a number of topics in microeconomics and institutional economics. More specifically, most papers were related to the economics of medical services and the economics of insurance. Below is the list of topics addressed by the papers in our project:

1. Employers’ provision of health insurance: What are the incentives of employers to offer high-quality health insurance to their employees instead of relying on the employees’ procuring medical for themselves? The model developed in the paper gives an explanation based on the “teamwork effect” (i.e. locally increasing returns to scale with respect to the employees’ presence in the office) and contract incompleteness.

2. Patents and innovation rate in pharmaceutical industry: What are the incentives to invest in new technologies (new pharmaceuticals, in particular) of the firms that hold patents on related products and other firms? The Arrow’s replacement effect suggests that the monopolist (i.e. patent holder) has little incentive to continue the search of new products. However, in reality, the large pharmaceutical firms continue making large R&D investment in certain groups of products after they get patents. The developed dynamic model indeed shows that a monopolist’s R&D investment is related to the remaining length of patent and, under certain conditions, is similar to the investment of competitors that do not hold patents.

3. The dependence of advertising level on years of experience for doctors: The paper suggests a model that explains an empirical phenomenon observed by Rizzo and Zeckhauzer (1990): after the ban on advertising for doctors had been abolished in the US, the volume of advertising chosen by doctors was found to be negatively related to their experience. The model is based on the idea that the information is durable in that after a patient is once informed about a doctor’s services, she is always aware of their availability. In this case the pre-emptive advertising early in the doctor’s career is shown to be more efficient.

4. Effect of divorce procedures on relationship-specific investment in marriage: What is the effect of changing the severity of formal divorce procedures on relationship-specific investment in a couple? The paper investigates this question using incomplete-contracts approach to bilateral relationships. It shows that more difficult (that is, costly) divorce procedures on the one hand, tend to increase the parties’ investment (thus bringing it closer to the optimum) for those couples that still choose formal marriage. However, there are also couples for which the divorce is sufficiently likely from the beginning, so its increased cost

NES Annual Report 2005-2006 83 discourages such couples from concluding formal marriage contracts and, consequently, reduces their investment.

5. A model of doctor avoidance with reference-dependent utility: The paper investigates the effect of certain psychological attitudes on health-care behavior. The now well-known Prospect theory of Kahneman and Tversky (1979) suggests that personal wellbeing depends on changes in consumption (and other variables) with respect to a reference point rather than on absolute levels, and that people are more sensitive to losses than to gains. The paper follows this idea, treating a person’s assessment of her health level as a reference point and focusing on the informational aspects of visiting doctors: a person’s concern about getting ban news about her health acts as a discouragement to getting medical aid.

6. Bundling in insurance industry: Some risks are usually insured separately, while others are often bundled. What are the determinants of the insurance companies’ decisions to offer bundled insurance for risks? The paper builds a model in which the presence of adverse selection is the main driving force that induces insurance companies to offer bundled insurance packages even in a situation when the existing explanations of bundling (complementarity, negative correlation of valuations, etc.) cannot be applied. The paper shows that the developed model can explain the occurrence of bundling both in monopolistic and competitive environments.

7. Packaging as an instrument of attracting buyers: The paper investigates several channels through which a good’s packaging is related to a consumer’s overall satisfaction with it. It considers several models, in which packaging is (a) driven by its proper consumption properties, (b) used as an instrument of price discrimination and (c) is used as an instrument of signaling the good’s quality. The paper obtains a number of intuitive results relating the package quality to the distribution of consumers’ tastes.

8. The markets for drugs and vaccines: Why there are many diseases for which there are many drugs but no vaccine? Why investments in drugs are often larger than investment in vaccines for the same disease by orders of magnitude? The paper extends and, somewhat, challenges the recent explanation given by Kremer and Snyder (2003), who suggest that asymmetric information about a consumer’s vulnerability to contracting a specific disease gives a drug seller (who acts after this asymmetry of information vanishes) advantage over a vaccine seller. This paper shows that this result depends crucially on the assumptions about the informational structure of the model, and while valid under some conditions, may be reversed under others, quite plausible, conditions.

3. Mutual funds Leader: Alexei Goriaev (NES)

The goal of this project was to evaluate performance of Russian mutual funds during the recent years, including the analysis of investment strategies, evaluation of risk-adjusted performance, performance persistence, validity of the existing classifications, and determinants of individual and category-level fund flows. This empirical analysis was based on daily data on fund returns and assets provided by Investfunds.ru. Similarly to the existing evidence for the US mutual funds, we find a strong positive relationship between individual fund flows and their past raw or risk-adjusted performance. The flow-performance sensitivity is the highest for top performers and declines over time. The aggregate flows to equity funds do not seem to be positively related to the concurrent or past market returns, yet are negatively related to the bond category flows. The style analysis applied to three main categories of Russian funds (equity, bond, and mixed) produces two groups roughly corresponding to equity-dominant and bond-dominant portfolio strategies, with a few outliers with clearly distinct strategies. Moreover, there are a few funds that declare one investment objective (e.g., bonds), yet seem to actually use another strategy (mostly stocks). Using models with the market index or the industry indices as risk factors, we find that an average Russian equity fund does not show a positive selection or timing ability. There are several funds with significantly positive Jensen’s alpha; however, their stellar performance can be attributed to the characteristics of Russian stocks rather than managerial skills. The actual distribution of fund alphas does not differ much from that under the null of no managerial ability, using randomly selected synthetic portfolios of Russian stock indices. The significantly negative timing ability of several funds may be explained similarly. We do find persistence of risk-adjusted performance of equity funds, but only at a short horizon, up to one quarter.

NES Annual Report 2005-2006 84 4. Dictators and Oligarchs Leaders: Sergei Guriev (NES, CEFIR), Konstantin Sonin (NES, CEFIR)

In this project we studied weakly institutionalized environments where both dictatorship and oligarchy are likely to emerge, and tried to understand how dictators interact with oligarchs, and what the preconditions for emergence and collapse of oligarchies and dictatorships are. The empirical basis for most of our sub- projects was the experience of a few developing and transition countries, as well as the past experiences of the now-developed countries. Most theoretical models developed within the project stems from recent advances in political economy and contract theory; in general, they describe interaction between voters, politicians, oligarchs, and investors.

The list of particular projects included the following.

(1) "Media Freedom, Bureaucratic Incentives, and the Resource Curse." The project addresses the following question: How can a non-democratic ruler provide proper incentives for state bureaucracy? In the absense of competitive elections and separation of powers, the ruler has to gather information either from a centralized agency such as a secret service or a decentralized source such as media. The danger of using a secret service is that it can collude with bureaucrats; overcoming collusion is costly. Free media aggregate information and thus constrain bureaucrats, but might also help citizens to coordinate on actions against the incumbent. The ruler's choice is endogenized in a dynamic model to argue that free media are less likely to emerge in resource-rich economies where the ruler is less interested in providing incentives to his subordinates. This prediction is consistent with both cross-section and panel data.

(2) "Strategic Behavior of Political Parties". The paper focuses on dynamics of political maneuvering before elections. Political parties optimize the moment for entry facing the following trade-off. Announcing political position, which is then impossible to change, early entry brings votes of those voters who decide their allegiance early (there is an exogenous share of such voters). However, the actual distribution of voters is not revealed until later, so early announcement cost some votes which would be gained by better positioning. Intuitively, parties prefer to enter the contest early, when the share of early voters is large and amount of information revealed later small.

(3) "Politically Connected Firms: Effect on Bankruptcy." The paper focuses on political connections of managers and owners of firms in bankruptcy. It is shown that political connections does not improve efficiency of bankruptcy proceedings, but might help bad firms to escape liquidation.

(4) "Collective Action Problem in Revolutions." The paper seeks to fill an important gap in theoretical literature on revolutions. How are contest groups organized? What are the trade-offs that define boundaries of revolutionary groups? The paper investigates revolutionary dynamics with tools of modern game theory.

5. Incidence and Duration of Poverty in Russia Leader: Irina Denisova (CEFIR at NES)

The main idea of the project is to study effects of economic growth on household welfare, and hence poverty, via its influence on labor market, and changes in employment and wage patterns in particular. The role of various types of mobility is to be studied as well. There are four main dimensions of the research project. • Analysis of the distribution of wealth, social status and economic performance • Analysis of long-term poverty in Russia • The study of the role of attitude to risk in the migration decision-making • A microanalysis of fertility in Russia, and the role of non-economic considerations in particular. The main project results at the time are the following. 1. The distribution of wealth, social status and economic performance The connection of the intensity of status seeking motives with respect to the position of the individual in the status ranking is analyzed using data of the Russian Longitudinal Monitoring Survey (RLMS). The status rank is explained by average expenditures of the household per head, the change in status position is considered as the indicator of status-seeking efforts. Neither concave relationship between stark-coefficient, nor linear with respect to status relationship is obtained which is in line with some recent literature. Our results suggest that there is no effect of deprivation on economic performance and it is questionable whether it is correct to use some variation on this effect in theoretical models. 2. Long-term Poverty in Russia Recent economic growth in Russia has lead to substantial changes in life, hence prompting for changes in poverty determinants. This component of the project identifies determinants of poverty spells in the pre-

NES Annual Report 2005-2006 85 growth and growth periods, and compares poverty patterns across periods. Ordered probit regressions based on RLMS panel for years 1994-2004 is utilized. It turns out that there is some variation in determinants of long-term poverty across the two periods, especially in terms of the magnitude of the influence. Some patterns are persistent over the whole period. In particular, there is no systematic difference between female headed and male headed households, while the presence of small children and unemployed working-age individuals in the household significantly increases the probability of a longer poverty spell. The results are important for the design of public transfer programs. 3. A microanalysis of fertility in Russia To set up sound demographic policies one needs to realize to what extent the material constraints (e.g., household incomes, living conditions) are actually binding today. We use 9 rounds of the nationally representative panel data of the RLMS (1994-2004) to distinguish between unconstrained wants to have children and actual births. We find that subjective factors, such as subjective welfare measures, moral values, family relations and religiousness govern the decisions to give birth and to make a pregnancy interruption even after controlling for economic (material) factors. We also examine the backward chain, namely how births alter mothers’ perceptions of life and whether children bring about happiness after all. 4. The study of the role of attitude to risk in the migration decision-making A theoretical model which explains the intensity and the structure of rural-to-urban migration is suggested. The key feature of the analysis as opposed to the existing literature is that agents differ with respect to risk aversion. The model demonstrates that people with different attitude to risk choose to work in different regions even though they face the same employment alternatives. This variation comes from the fact that workers with different attitude to risk differently evaluate the same uncertainty of future employment. The model sheds the light on empirically observed structure of rural-to-urban migration. Some empirical evidence in support of assumptions and predictions of the model is provided.

6. Imperfect Information and Bounded Rationality with Applications to Macroeconomic Dynamics Leader: Alexei Deviatov (NES)

This project aims to look into several traditional arenas of macroeconomics from the microeconomics standpoint. We focus on the role of imperfect information and bounded rationality for the real business cycle, growth, and money. The payoff to our effort is a short list of interesting results.

First, we demonstrate that bounded rationality of individuals is important for the dynamics of prices. It is known that monetary equilibria in models with rational expectations often fail to be (expectationally) stable. Examples of such models include dynamics in money-in-the-utility-function models (Walsh, 2003), overlapping generations models (Azariadis, 1993), random matching models (Trejos-Wright, 1995). In these models rational expectations equilibria with valued money exist, but they are not necessarily stable. We replace rational expectations by bounded rationality and use a background random matching model where money arises endogenously as a medium of exchange. We use two alternative approaches to modeling bounded rationality – the classifier system for individuals with artificial intelligence (individuals choose and update a set of behavioral rules) and the replicator dynamics (individuals copy successful strategies of their opponents). We show numerically that under both of the alternative approaches monetary equilibria exhibit (a much better) stability.

Second, we attempt to estimate the Cagan demand function for gold using data for 1561-1913. The Cagan (1956) demand function for money posits that its real value depends positively on its expected return. The data we use are from “The Golden Constant” by Roy Jastram (1976): a time series on the price of gold in terms of consumption (The Index of Purchasing Power of Gold: England 1560-1976) and a time series on gold production (The index of World Production of Gold, 1493-1972). Because the data describe world production of gold, we view our demand function to be one for the world as a whole. The main challenge is modeling the expected return. Our approach is simple. Measurement error aside, we assume that there are two exogenous random processes. One is a process for gold production and the other is a latent (unobserved by us) process for a scale variable like total income or consumption. We assume that the processes and the current state are known and that an expected return is formed based on that information and on the true demand function. It turns out that our model is rejected by the data in the following senses: our estimates imply that the real value of gold varies a great deal relative to the expected return and depends negatively, rather than positively, on the expected return. We hope that our effort will inspire others to consider alternative models of these time series.

NES Annual Report 2005-2006 86 7. Analysis of Energy Markets in Russia Leaders: Oleg Eismont (NES), Sergey Chernavsky (CEMI)

Within the project “Analysis of Energy Markets in Russia”, the following research has been done. 1. “Estimation of electricity demand of Russian households”. For the estimation, the data base “NOBUS”, containing the data on 45,000 Russian households, has been used. Unlike the results of previous research, it has been shown that the Russian households are characterized by nonzero price elasticity of electricity demand. 2. “Efficiency of different schemes of selling Russian gas to Europe”. Analysis has shown that the most efficient way of trading with Europe is selling all the natural gas to Ukraine, the latter deciding on how much gas it should consume itself and how much re-export to Europe. 3. “Using the theory of real options for estimating the value of natural resource deposits in Russia”. It has been shown that using the theory of real options yields higher value of a particular oil field in Russia, relative to the traditional method of direct cash flows. 4. “Estimation of demand for natural gas by some sectors of the Russian economy”. Price elasticities of natural gas demand by metallurgy, chemical and food industries have been obtained. Of the mentioned industries, only metallurgy is characterized by statistically significant price elasticity of natural gas demand. 5. “Estimation of supply function of Russian oil exports to the world market”. Dependence of the Russian oil exports to the world market on world oil prices, oil exports duty, oil exports to CIS countries, domestic, world, and OPEC oil production has been obtained. 6. “Efficiency of increasing currency reserves by a resource exporting country”. By analyzing dynamic macroeconomic model of a resource exporting country, it has been shown that, due to price rigidity, increasing revenues from exports of natural resources could lead to lower GDP. One of the efficient means of overcoming this effect is increasing currency reserves. There is the upper level of the rate of increasing currency reserves.

8. Shake-out in IO Leader: Grigory Kosenok (NES)

Shake-out plays an important role in industry structure formation. This is why this topic attracts a lot of attention of IO economists. The modeling includes one (or maybe a few) leading firm in an industry and competitive fringe. The leading is interested in capture of larger share of the market in order to collect more profits in the future. In the presence of high barriers of entry one way of doing it is to force some fringe firms to leave the market (shake-out process). Shake-out can be implemented by many tools: aggressive price policy, advertisement, research and development (R&D) and so on. The current project intends to elucidate an understanding of possible shake-out scenarios. Below the very brief description of results obtained is presented.

Shake-out in IO via brands: In this work we explore the case when the leading firm speeds up the process of shake-out by using the pressure of diversity of brands. We have developed a dynamic game-theoretic model which allows demonstrating the process of shake-out as a result of expanding variety of brands by the leading firm. We have found that the different types of shake-out could be observed in the equilibrium.

Advertisement and Shake-out: Here we address the issue of the optimal shake-out policy of a leading firm by advertisement pressure on the competitive fringe firms. This pressure might cause exit of the fringe firms. The leading firm is interested in capture of a larger share of the market in order to collect more profits in the future. To do so it can employ aggressive advertising policy to entice consumers from the firms in the competitive fringe. The solution of the model is a result of application of the theory of repeated games in discrete time together with Nash Equilibrium concepts.

Tacit Collusion and Shake-out: The modeling includes two identical dominant firms in an industry and a continuum of competitive fringe. The leading firms might be interested in capture of a larger share of the market in order to collect more profits in the future. In the presence of high barriers of entry one way of doing it is to force some fringe firms to leave the market (shake-out process) by implementing aggressive price. The project elucidates understanding of whether and, if so, to what extent the leading firms would force out competitive fringe. The consequences of tacit collusion on social welfare will also be discussed. The outcome is compared to the monopoly one.

Consumer Loyalty and Shake-out: It is well known that the degree of consumer loyalty to a firm plays a significant role for profits collection of the firm and as a result it determines the viability of the firm in an industry. The purpose of the paper is to study the influence of the degree of consumer loyalty on exit of non

NES Annual Report 2005-2006 87 leading firms from the economy, where one leading firm is present in the industry. The loyalty implies that any consumer is “sticky” to the product of the same firm when the price of other firms’ product is not too low. This market feature may be crucial for industry to be monopolized. So that under certain market environment the dominant firm might stop a removal of fringe firms and enjoy the market share it has.

R&D and Shake-out: The purpose of this research is to study the influence of R&D on the process of shake-out and so to determine its role in industry structure formation. R&D is helpful for lowering down costs and allows the dominant firm to set lower prices in order to make a part of fringe noncompetitive, consequently it may speed up the process of shake-out. The solution of the model is a result of application of standard elements of the theory of repeated games in continuous time together with Nash Equilibrium and Nash refinements concepts.

9. Economics of education Leader: Valery Makarov (NES, CEMI)

The project is designated of empirical study of some research questions in political economy and behavioral economics. The prime database source for the project was database “Monitoring of administrative barriers on SME growth”. This database was created by CEFIR (www.cefir.ru). To supplement Monitoring database there was also created database of gubernator biographies. There are four main research topics:

Empirical analysis of the impact of socio-economic factors on memory limitations of agents Aim: to evaluate factors which influence memory limitations of agents The scope of this research belongs to the field of behavioral economics. The problem at issue is the effect of memory limitations and its genesis. An attempt has been made to find factors which would explain the effect of memory constraint manifested by the agents. This project is based upon the data on small business-firms, which reveals what part of information firm managers tend to forget. The data source that has been used is the results of CEFIR survey of the level of administrative barriers for small business development. This database permits to obtain statistically significant variables which partially explain why people forget obvious things. Further on we proceed with more complicated regressions that include all significant variables as well as we carry out the same kind of research on the regional rather than firm level and thus reveal the impact of various institutional factors on the level of memory constraint. The coefficients attained help to assess the bias which is inevitably entailed by each survey.

Empirical analysis of pessimism of Russian Entrepreneurs. Aim: to evaluate factors which influence level of pessimism of Russian entrepreneurs in their evaluation of speed and direction of economic reforms The project is devoted to pessimism of Russian entrepreneurs in their evaluation of speed and direction of economic reforms in Russia. The evidence of dissatisfaction of businessmen in our country is given and the attempt to obtain pessimism measure has been made. This project r also shows that in some regions of Russian Federation entrepreneurs are more pessimistic than in others. For example, businessmen from Moscow, Amurskiy, Novosibirskiy regions are more pessimistic than on other regions and people from St.Peterburg are the most dissatisfied. Relaying on studies of subjective well-being and happiness researches for other countries, factors which influences pessimism are given here. Factors of a firm, demographic and personal, economic and regional levels are considered. It is shown that people from regions with low level of unemployment, high level of freedom of mass-media are less pessimistic. Also, that fact that average temperature and level of precipitations in winter and summer influence subjective well-being in described here.

Empirical analysis of effect of former businessmen gubernators on administrative barriers to small business development. Aim: to analyze difference in regional policy of gubernators which come to the office from business and from bureaucratic position The project is devoted to analysis of difference in regional policy of gubernators which come to the office from business. We concentrate on regional policy in regulation. There are two database used in our analysis. The data “Monitoring of administrative barriers on SME growth (CEFIR) contains data on regulation barriers in 20 Russian regions. The second dataset is database of gubernator biographies. The data was constructed in the frame of this project. The main sources for this data are Labyrinth database and different internet sources. The main result of our analysis is that gubernators-businessmen are more attractive for small business. Difference is great during the first term of governance, and becomes insignificant during the next terms.

NES Annual Report 2005-2006 88 Corruption and competition between regulation agencies Aim: empirical analysis of effect of presence of competition between regulatory agencies on level of corruption The project is devoted to empirical analysis of competition between regulatory agencies on level of corruption. Following Shleifer’s designated work “corruption” we try to test the effect of presence of competition between regulatory agencies on level of corruption in these agencies. Our prime database source for the project was database “Monitoring of administrative barriers on SME growth”. Our finding suggests that presence of competitive agencies in a region significantly reduces costs of regulation. At the same time increase in number of regulatory agencies which do not compete between each other significantly increases costs of regulation.

10. Banking sector in Russia V Leaders: Anatoly Peresetsky (NES), Alexander Karminsky (MGTU, Gazprombank) Consultant: Bertran Melenberg (Tilburg University)

The goal of the project was to analyze the development of the Russian banking system.

First paper considers risk of losses due to fraud in the Internet sells in Russia. Using the real data on selling transactions from a company that is selling intangible goods on the global market using Internet, scoring models were constructed. Probit model with selection mechanism turned to be the most appropriate as a general fraud scoring model because it allows estimating probabilities of fraud and testing for significance of the sample selection mechanism. It was shown that the model can efficiently detect a significant part of fraud. This research results have been already implemented by merchant in fraud scoring application.

Second paper design the econometric models based on bank’s publicly available financial indicators for the bank ratings of international rating agency Moody’s. On the basis of models some insights were made on the way the agency estimate the rating of a bank. It was shown that introducing of macroindicators and modelling separately investment and speculative ratings improve the quality of the models. Realative financial indicator scales improve the stability of the models. The probability of the rating change was shown to be higher for the banks with low ratings. The models could be used to create a “model forecast” of Moody’s ratings for a large set of Russian banks. The only restriction here is the lack of international accounting data on Russian banks.

The purpose of the third paper was to estimate the technical efficiency of Russian banks in terms of loan and deposit activities. The general approach introduced in the working paper Caner et al. 2004 was used as a framework for the research. It was shown that the efficiency concept is limited. The largest banks diversify their activity and hence are not the most efficient from the point of view of deposits or loans activity. The lists of “most efficient” banks were constructed.

The purpose of fourth research direction is to analyze the impact of key financial indicators and introduction of the Deposit Insurance Agency (DIA) on the structure of banks’ deposit rates. It is shown that size; liquid assets to deposit ratio and share of long-term credit in credit to non-financial firms negatively influence the rates, while rates positively depend on the share of corporate securities in net assets, share of non-performing assets in net assets and profitability of a bank. Introduction of the DIA in general has resulted in some increase of deposit rates.

11. Resource Abundance, Globalization, and Economic Development Leaders: Victor Polterovich (NES, CEMI), Vladimir Popov (NES, Carleton University, Canada)

It seems obvious that a country endowed with larger quantities of natural resources has an advantage and (other conditions being similar) has to grow faster than resource poor countries. This is not exactly the case, however. Between 1960 and 1990 the per capita incomes of resource poor countries grew two to three times faster than the per capita income of resource abundant countries, and the gap in the growth rates appears to widen with time (Sachs and Warner (1999), Auty (2001)).

This surprising phenomenon became a subject of intensive researches, both empirical and theoretical ones. The most recent papers (Leite, Weidmann, 1999; Alexeev, Conrad, 2005; Stijns, 2005; Boyce and Emery, 2005; Mehlum et al., 2005) have concluded that it is not the resource abundance per se that undermines growth, but poor institutional environment and inappropriate policies that should be held accountable for poor performance of many resource abundant countries. In line with the recent studies we offer several explanations, why poor institutions and wrong policies can have a particularly devastating effect for growth in resource abundant countries.

NES Annual Report 2005-2006 89

It is demonstrated theoretically that natural resource extraction does not influence other sectors of the economy in case of ideal institutions, free international market for natural resources and absence of technological progress. The empirical study of to two types of the equilibria: producer equilibrium and grabber equilibrium, analyzed in (Mehlum et al., 2005) confirms that the threshold function for growth depends on both resources and institutions. It was also shown that appropriate tax policy in a resource abundant economy can cure the "Dutch disease".

12. Corporate Governance in Emerging Markets Leader: Sergey Stepanov (NES, CEFIR)

The aim of the project was to study the choice of corporate governance mechanisms and ownership structures by firms as a function of institutional environment. The focus was made on the market for corporate control and the relationship between large shareholders in a company.

Three theoretical models were developed. Two of them were devoted to the problem of hostile takeovers. The starting point of both models was that weak corporate governance makes firms more vulnerable to takeovers. A controlling owner, thus, is faced with a tradeoff: establishing weak corporate governance mechanisms allows him to expropriate minority shareholders, but increases a likelihood that the firm will be taken over by an outside raider. Both models looked at the choice of corporate governance by a controlling shareholder, depending on his equity share. It was shown that the quality of corporate governance is generally non-monotonic with respect to the controlling shareholder’s stake, and that lower market transparency should lead to a greater level of corporate governance being chosen.

A separate issue was to study the effect of corruption in courts, which makes it possible for raiders to use illegal schemes of acquiring control over firms. It was shown that corruption has a non-monotonic impact on the choice of corporate governance. Under low corruption, more corruption forces the controlling shareholder to choose a higher quality of corporate governance in order to protect his firm from a takeover. However, when corruption is too high, it becomes optimal to practice bad corporate governance and to strip the firm of its assets, as even very high level of corporate governance cannot prevent a takeover.

The third model analyzed the emergence of ownership structures with several large shareholders of comparable power in a firm. The presence of such ownership structures in various countries (as opposed to a structure with only one controlling shareholders) has been documented in several empirical studies. On the one hand, multiple large shareholders provide checks and balances against each other’s opportunistic behavior. On the other hand, blockholder multiplicity can lead to costly disagreements over private benefit extraction by the blockholders. The model studied the choice between a structure with two blockholders and a structure with only one controlling shareholder, depending on a firm’s profitability and the quality of legal shareholder protection in a country.

It was shown that both profitability and shareholder protection have generally a complex and non- monotonic effect on the optimal number of blockholders (either one or two). Under a certain way of modeling legal protection, the results of the model were found in agreement with the empirical observations. However, the model also showed that depending on the way legal protection is modeled the results can be qualitatively different, which suggests that the law and finance literature should treat legal shareholder protection in a more complex way than simply parameterizing it with a single parameter.

13. Analysis and Design of Electricity Markets Leader: Alexander Vasin (NES, MSU) Consultants: Francisco Marhuenda (University Karlos III), Polina Vasina (ISA RAS)

The main objects of this project. This project aims to examine different variants of electricity market development, in particular, for the Russian market. The first task is to compare different kinds of everyday supply function auction: pay as bid, unique price and Vickrey auction. The second problem is to study models of the two-stage market including a forward market and a day ahead auction. We propose to consider different variants for each stage and to compare them with respect to the electricity price and the social welfare. One more direction is to study network markets and to find an efficient method for computation of equilibrium outcomes for the network supply function auction.

Obtained results. 1. For a unique price supply function auction, we determined a minimal degree of the market splitting that is sufficient to provide the consumer price below a given level.

NES Annual Report 2005-2006 90 2. We studied the impact of the forward market on the social welfare and the price of the good at the two-stage market with Bertrane competition at the forward market and Coutnot competition at the spot market. We showed that existence of the forward market increases the total welfare, but may also increase the average price and reduce the surplus of some consumers. 3. We considered 2-node and 3-node network markets and determined the parameters areas for existence and coexistance of different Nash equilibria: with separated markets, with and without binding transmission capacity constraint.

14. Causes of Resource Dependence of the Russian Economy: the "Dutch Disease" or Insufficiently Developed Institutions? Leader: Natalya Volchkova (CEFIR)

The goal of this research is to study the effects of natural resource abundance on various aspects of economy performance. We analyze the applicability of Dutch disease symptoms to the modern Russian economy, we study the effects of stabilization funds on economic performance in various countries over the second part of the 20th century and evaluate the optimal size of Russian stabilization fund, we perform the analysis of interrelation between resource abundance and degree of industrial diversification and its effect on economic growth, and we studied the spillover effect or resource exploitation on the development of industrial sectors depending on the degree of the sector’s human capital intensity.

To analyze the Dutch disease effect on Russian economy we analyze the interrelationships among the oil price, output of manufacturing sector, output of extraction sector, money supply and real exchange rate based on monthly data over the period 1998-2004. Our results do not support the hypothesis of the presence of Dutch disease in Russia and vice versa indicate that the positive shocks to oil price have stimulative effect on the development of the manufacturing.

The survey of stabilization funds around the world and their effect on countries economic performance indicates the substantial endogeneity of the fund creation to the overall fiscal discipline of the corresponding governments that does not allow to single out the direct effect of the fund on the economic performance.

The study of diversification and its role in economic development reveals that there is no unambiguous relation between the degree of manufacturing diversification and the size of extraction industry. In some cases extraction industry development is associated with the increase in industrial diversification and in the others it depresses diversification. At the same time in cross section study it was shown the positive effect of diversification on the income level in the economy however due to former ambiguity it is impossible to conclude on the effect of natural resource extraction on the country’s welfare.

Interesting result was revealed in the study of resource effect on the development of industries differentiated on the basis of human capital requirement. Based on differences in differences analysis applied to cross section of countries it was shown that the difference in growth rates of industries that require more skilled labor force relative to those with lesser requirement for high skilled labor is significantly lower in countries with higher share of extraction industries in overall GDP relative to those countries with lesser share. We interpret this result as the evidence that supports the hypothesis that resource abundance depresses the human capital development in economies.

We can summarize out findings in the following way. While the rapid development of extraction sector in Russia up to date does not reveal the depressing effect on the development of manufacturing industry it could be a threat to further diversification of industrial production which is the important ingredient to ensure the sustainable growth of the Russian economy. It also requires the special efforts of the government and business community to guarantee the sufficient development of human capital in the economy as it threatened by the development of extraction industry. We also believe that while the launch of the stabilization fund in the Russian economy is unambiguously positive innovation it should be supported by the substantial improvement in the corresponding legislation to ensure the efficient management of the fund and the transparency in its spending.

15. Monetary and fiscal policy in the resource-base economy Leader: Kirill Sosunov (NES, HSE) Consultant: Elena Sharipova (Institute for Open Economy)

The project was meant to answer important questions how monetary and fiscal policy in the resource-based economy should differ from the policy in the economy, which is not subject to large terms of trade shocks.

NES Annual Report 2005-2006 91 Issues related to the conduct of the policy and therefore considered in the project included real exchange rate dynamics, dollarization and money demand, inflation – real exchange rate trade-off.

Several important result were obtained during the project implementation.

Firstly, it was shown that contrary to the conventional view large real exchange rate appreciation during the last 5 years couldn’t be explained only by increase of relative prices of non-tradable vs. tradable goods. In fact, about two thirds of real appreciation can be attributed to the rise of prices of domestic tradable vs. imports. This result is line with existing studies of other developing economies and can be justified by large share of not-tradable component in domestic tradables and their low competitiveness even on the domestic market which essentially makes then non-traded goods.

Secondly, it was shown that once cash foreign currency and foreign currency deposits is included in the measure of liquid assets money demand in Russia become surprisingly very stable during the last 5 years. Therefore, large increase of domestic currency monetization should be attributed to the dedollarization activity not to the increase of broad money demand as was suggested by many observers. In other word velocity of properly defined liquid assets did not change at all during last several years in line with crude monetarist of view. Based on this one can forecast that since the scope of the future dedollarization is quite limited ruble money velocity will not be falling as fast in the future.

Thirdly, the computable dynamic general equilibrium framework for analyzing various changes in the external conditions and fiscal policy arrangements was developed and calibrated. This project has only gone through its first stage is still in progress as at present the framework has not been tested in the sense of doing simulation studies.

Lastly, the model of forecasting distribution of inflation instead of single value forecast was developed. The model is similar to the one used in several Central Banks including Bank of Sweden and Reserve Bank of New Zealand.

NES Annual Report 2005-2006 92 Appendix 5: Conference Programs

XVIII Research Conference (November 2005)

Thursday, November 3, 2005

10:00—10:10, room 521 Registration, Opening: Valery Makarov

10:10—12:10, room 521 Session 1 Chairman: Victor Polterovich Author: Valery Makarov Title: Modelling of a usponsibilities distribution among regional and local governments. Case of Russia Authors: Ekaterina Zhuravskaya, Eugeniy Yakovlev Title: State Capture in a Federation Discussant: Natalya Volchkova Authors: Andrei Bremzen, Georgy Egorov, Dmitry Shakin Title: How were deputies in the third Duma elected and how they voted Discussant: Anton Suvorov

12:40—14:40, room 521 Session 2 Chairman: Natalya Volchkova Authors: Anton Suvorov, Akhmed Akhmedov Title: Human capital accumulation with non-verifiable performance Discussant: Andrey Bremzen Author: Yulia Khaleeva Title: Monetization of Social Benefits in Russia: Microsimulation Analysis Discussant: Irina Denisova Author: Natalia Tourdyeva Title: An interregional computable general equilibrium model for Russia Discussant: Alexey Makrushin

16:00—18:00, room 521 Session 3 Chairman: Alexei Deviatov Authors: Sergei Golovan, Alexander Karminsky, Anatoly Peresetsky, Eugeny Sheenko Title: Efficiency of the Russian banks Discussant: Pavel Katyshev Authors: Konstantin Khorev, Ilya Sheinzon, Kirill Sosunov, Oleg Zamulin Title: Terms of trade shocks and optimal current account in a small resource-based economy. Case of Russia Discussant: Alexei Deviatov Authors: Anatoly Peresetsky, Alexander Karminsky, Sergei Golovan, Sergei Rtischev, Alexey Shishkin Title: Retail business of Russian banks Discussant: Alexey Goriaev

18:30—20:00, room 521 Keynote Address Chairman: Sergey Guriev Ruben Vardanian (Troika Dialog Group): Problems of investment business

NES Annual Report 2005-2006 93 Friday, November 4, 2005

10:00—12:00, room 521 Session 4 Chairman: Anton Suvorov Author: Grigory Kosenok, Philip Haile, Ali Hortacsu Title: On the Empirical Content of Quantal Response Equilibrium Discussant: Anton Suvorov Author: Oleg Eismont Title: Efficiency of Increasing Currency Reserves by Resource Exporting Country Discussant: Kirill Sosunov Authors: Sergey Chernavsky, Oleg Eismont Title: Perspectives of Liberalizing Natural Gas Market in Russia Discussant: Feigin Vladimir

12:20—14:20, room 521 Session 5 Chairman: Pavel Katyshev Authors: Sergei Guriev, Dmitriy Kvasov Title: Imperfect competition in financial markets and capital structure Discussant: Sergey Stepanov Authors: Alexei Goriaev, Alexei Zabotkin Title: Risks of investing in the Russian stock market Discussant: Anatoly Peresetsky Author: Stanislav Anatolyev Title: A unifying view of some predictability tests Discussant: Alexander Gerko

15:10—17:10, room 521 Session 6 Chairman: Grigory Kosenok Authors: Victor Polterovich, Alexander Tonis Title: Hiring Strategies and the Evolution of Honesty Authors: Victor Polterovich, Vladimir Popov Title: Democracy and growth reconsidered: why economic performance of new democracies is not encouraging Discussant: Alexander Vasin Authors: Alexei Deviatov, Neil Wallace Title: Explaining Three Centuries of the Value of Gold with a Model of Saving Discussant: Grigory Kosenok

17:30—19:00, room 521 Distinguished Lecture Chairman: Barry Ickes Jan Magnus (Tilburg University): Local sensitivity in econometrics

NES Annual Report 2005-2006 94 Saturday, November 5, 2005

10:30—11:50, room 521 Session 7 Chairman: Stanislav Anatolyev Authors: Alexander Vasin, Polina Vasina Title: On electricity markets analysis and design Authors: Oleg Baranov, Ruslan Mavlichanov, Alexander Vasin Title: Equilibria of the supply function auction under stochastic demand Discussant: Fuad Aleskerov

12:10—13:30, room 521 Session 8 Chairperson: Alexander Vasin Authors: Andrei Gomberg, Francisko Marhuenda, Ignacio Ortuno-Ortin Title: Endogenous platforms: the case of many parties Discussant: Fuad Aleskerov Authors: Irina Denisova, Marina Kartseva Title: Poverty Is No Crime: Measuring Poverty in Russian Regions Discussant: Polina Kuznetsova

13:30, room 521 Closing: Barry Ickes, Valery Makarov

NES Annual Report 2005-2006 95 XIX Research Conference (May 2006)

Thursday, May 11, 2006

9:50 – 10:00, room 521 Registration, Opening: Valery Makarov

10:00 – 11:20, Session 1 A (room 521) B (room 320) Economics of Education Dictators and Oligarchs (part I)

Project leader: Valery Makarov Project leaders: Sergei Guriev, Konstantin Sonin Chairman: Anton Afanasyev Chairman: Sergey Stepanov

Dmitry Bianko: Corruption and competition between Dmitriy Dubovskiy: Strategic Behavior of Political state agency. Empirical study of Russian markets Parties Maria Bulytcheva: The Impact of Socio-economic Anastasia Zakolyukina: Politically Connected Factors on Memory Limitations Manifested by Agents Firms: Effect on Bankruptcy Anna Grichina: Pessimism of Russian Entrepreneurs Alexey Kushnir: Problem of Collective Action in in their perceptions of impact of economic reforms Revolutions Andrey Lesnikh: Executive power and administrative Ivan Lazarev: Political Institutions, Industrial barriers to small business development Structure, and Economic Performance

11:40 – 13:00, Session 2 A (room 521) B (room 320) Imperfect Information and Bounded Rationality with Dictators and Oligarchs (part II) Applications to Macroeconomic Dynamics Project leaders: Sergei Guriev, Konstantin Sonin Project leader: Alexei Deviatov Chairman: Andrei Bremzen Chairman: Victor Polterovich Andrei Malenko: Oligarchic Capitalism and Alexander Glebov: Incomplete enforcement of Financial Development intellectual property rights, innovation and economic Konstantin Pravednikov: Competition of political growth parties in different election conditions Alexandr Zykov: About stability of monetary Andrei Rachkov: Interaction between a President equilibria and Oligarchs in Weakly-Institutionalized Societies Iana Kovrigina: On the stability of monetary Nikita Roketskiy: Optimal Term Limits exchange Dmitriy Lisitsyn: Optimal Patent Protection and Long-run Growth

14:10 – 15:30, Session 3 A (room 521) B (room 320) Incidence and Duration of Poverty in Russia Corporate governance and optimal design of corporate law in emerging markets Project leader: Irina Denisova Chairman: Julia Khaleeva Project leader: Sergey Stepanov Chairman: Konstantin Sonin Levon Atanassian: Long-term Poverty in Russia Olga Gorelkina: A Microanalysis of Fertility in Alexei Galanin: The Choice of Corporate Russia: the Role of Non-Economic Considerations Governance under a Takeover Threat Olga Lampe: The distribution of wealth, social status Alexander Radaev: Multiple large shareholders as and economic performance a signaling device Ivan Potekhin: The Role of Attitude to Risk in the Ruslan Sadriev: Hostile takeovers under weak legal Migration Decision-Making institutions

NES Annual Report 2005-2006 96 14:10 – 15:30, Session 4 A (room 521) B (room 320) Causes of Resource Dependence of the Russian Monetary and fiscal policy in the resource-base Economy: the "Dutch Disease" or Insufficiently economy Developed Institutions? Project leader: Kirill Sosunov Project leader: Natalia Volchkova Chairman: Vladimir Popov Chairman: Irina Denisova Sofia Borisova: Dutch disease in a resource-based Dmitriy Maroushkevitch: Dutch Desease: Evidence economy from Russia Aleksandra Evtifyeva: Inflation density forecast Loubov Startseva: Diversification of economy in with Central Bank subjective judgments. Example of resource-abundant countries Russia Elena Suslova: Human capital underdevelopment and Juriy Malyavkin: Money demand and currency the "resource curse" substitution in Russia Elena Trukhacheva: The role of home and foreign prices on tradables and nontradables in RER fluctuations in Russia

17:30 – 19:00, room 320 Zvi Griliches Distinguished Lectures: Chairman: Barry Ickes Kenneth Rogoff (Thomas D. Cabot Professor of Public Policy and Professor of Economics, Harvard University): Exchange Rate and Commodity Price Volatility and Productivity Growth: The Role of Financial Development

Friday, May 12, 2006

10:00 – 11:00, Session 5 A (room 521) B (room 320) Structural breaks and structural change in financial Network Markets for Homogeneous Goods and other series Project leader: Stanislav Anatolyev Project leader: Alexander Vasin Chairman: Pavel Katyshev Chairman: Anton Suvorov

Yaroslav Volkov: Behavior of tests for structural Julia Voloshina: Duopoly and monopoly equilibria breaks in non-standard situations in Electricity Markets Konstantin Golyaev: Monitoring Model Stability Anna Lavrentieva: Comparative analysis of with Sample Revisions uniform and "pay-as-bid" auctions Egor Matveyev: Monitoring Structural Change in a Leontiev Vladislav: Models of competition with Model Based on a Set of Conditional Moment application to the network markets of homogeneous Restrictions goods with three nodes

11:30 – 12:30, room 521 Keynote Address: Chairman: Sergei Guriev William Joseph Burns (Ambassador of the United States of America to the Russian Federation): The Future of US-Russian Relations

13:40 – 15:40, Session 6 A (room 521) B (room 520) Resource Abundance, Globalization, and Analysis of Russian Energy Markets Economic Development Project leaders: Victor Polterovich, Vladimir Popov Project leaders: Oleg Eismont, Sergey Chernavsky Chairman: Marhuenda Francisko Chairman: Alexander Vasin

Maxim Vorobiev: The Role of the State in Daria Kaygorodtseva: Option valuation of claims Overcoming Resourse Curse on petroleum leases in Russia Nadezhda Zhukova: The use of natural resources Irina Kuznetsova: Industrial Demand for Natural and economic growth in countries with weak Gas in Russia institutions Konstantin Petrov: Optimal foreign exchange Georgy Kartashov: Economic growth and accumulation by Central Bank of Russia institutional quality in resource oriented countries Yana Ukhaneva: How to sell Russian gas to

NES Annual Report 2005-2006 97 Natalia Pereldik: The relation between real Europe? exchange rate targeting and inflation Igor Khmel: Estimate of the Russian oil export Egor Chistyakov: Democracy, natural resources function and economic growth in panel regressions Ekaterina Sherbakova: Estimation of household Julia Shkurat: "The curse of natural resources" in a electricity demand in Russia model with endogenous growth

16:00 – 18:20/18:40, Session 7 A (room 521) B (room 320) Trend of the Banking Sector in Russia and Bank Topics in institutions and microeconomics Ratings V Project leaders: Andrei Bremzen, Anton Suvorov Project leaders: Anatoly Peresetsky, Alexander Chairman: Grigory Kosenok Karminsky Chairman: Oleg Eismont Rostislav Bogoslovsky: Employers' Provision of Health Insurance in the Presence of Public Health Alexandr Kalenik: Application of scoring models Care Provision for increasing effectiveness of internet credit Stanislav Dyachkov: Dependence between volume systems of advertising and experience on the market of Olga Kostyurina: Efficiency Estimation of Russian physician's service Banks in Terms of Cost Minimization Nikolai Zak: The Mysterious Market of Drugs and Iya Malakhova: Modeling of ratings of Moody's Vaccines and S&P international rating agencies, including Sergey Kovbasyuk: Specific investments and some Russian banks marriage legislation Ekaterina Minenkova: Modeling of Bank Ratings Ksenia Panidi: Why Do We Avoid Doctors? The of Moody's Investors' Service Rating Agency Using View from Behavioral Economics Standpoint Macroeconomic Indicators Alexey Tarasov: Package Size and Package Quality Elena Pastukhova: Efficiency and Risk in Russian Konstantin Chernishev: Patents and Innovation Banking Race in the Pharmaceutical Industry Olga Shatalova: Analysis of the Factors that Ivan Shkrebela: What causes insurance companies Influence Banks' Deposit Rates to choose between separate and bundled insurance Alexandr Shulzhenko: The analysis of connections of related accidents? between bonds and bank's characteristics

Saturday, May 13, 2006

11:00 – 12:40/13:20, Session 8 A (room 521) B (room 520) Shake-out in IO Mutual funds

Project leader: Grigory Kosenok Project leader: Alexei Goriaev Chairman: Alexei Deviatov Chairman: Stanislav Anatolyev Timur Gusmanov: The Determinants of Money Oleg Baranov: Shake-out in IO via creation of new Flows to Russian Mutual Funds brands Nikita Zheleznyy: Risk Factors in Russian Stock Tatyana Vyatkina: R&D and Shake-out Market Irina Luschevskaya: Shake-out in IO via Larisa Zaitseva: Performance persistence of aggressive advertisement policy Russian mutual funds Olga Martynova: Tacit collusion and shake-out Vladimir Mnogoletniy: Mutual funds: Fund flows Tatyana Prokina: Consumer loyalty & shake-out and investor sentiment Consequences of Social Tax Reform Dmitriy Muravyev: Do Russian mutual funds overperform the market? Bella Rabinovich: Russian mutual funds styles Vadim Safonov: Measuring Timing Ability of Russian Mutual Funds 12:40 Closing 13:20 Closing

NES Annual Report 2005-2006 98 Appendix 6: NES Publications, 1998-2006

Best Student Papers

Akhmedov A. (2001) “The Role of Bank Lending in Creating Soft Budget Constraints for Russian Enterprises. Evidence from Enterprise-Level Data”

Alekseev A. (2003) “An application of a Computable General Equilibrium Model for the Estimation of Effects of the new wave of the European Union Enlargement on the Russian Economy”

Andrykov A. (1999) “Analysis of Security Market Crisis in Terms of strategies of the Major Players”

Bassov O. (2000) “Externalities in the Production of Knowledge”

Besstremyannaya G. (2001) “The Applicability of the Tiebout Hypothesis to Russian Jurisdictions”

Bikbov R. (2001) “Competition and Managerial Turnover: Evidence from Russia”

Birulin A. (1999) “On Monetizing a Barter Economy”

Bobyshev A. (2001) “Russian Banks: Typical Strategies and Financial Intermediation”

Chistyi A. (1999) “Radical Reforms versus Gradual Approach”

Chukmaitova A. (2003) “Determinants of Life Expectancy and Mortality: Comparative Analysis of Different Regions in Kazakhstan”

Davydenko S. (1999) “Cost Of Capital in Russian Financial Industrial Groups”

Dodonova A. (1998) “The Creation of Financial-industrial Groups: Signaling Model”

Drougov M. (2001) “Higher Education Expansion in Russia: What Stands Behind?”

Egorov G. (2004) “Commercial Litigation under Imperfect Information”

Itskhoki O. (2004) “Asymmetric Price Rigidity and the Optimal Rate of Inflation”

Gabdrakhmanov S. (2000) “Inefficient Labor Markets and the Emergence of Diversified Firms”

Garshin V. (2003) “Macroeconomic Factors as Determinants of Stable Bank Development”

Gerko A. (2003) “Market Efficiency: Statistical vs. Trading Approaches”

Golovan S. (1999) “The effect of Forgetting in Theory of Collective Reputation”

Goltsman M. (2000) “Empirical Analysis of Managerial Turnover in Russian Firms”

Gureev A. (2000) “Implications of Revenue Sharing for the Problem of Insecure Property Rights”

Gvozdenko D. (2003) “The Development of the Common European Economic Space between Russia and the EU”

Karev M. (2001) “Towards the Dynamic model of Legal Reform”

Kartashov G. (2006) “Economic Growth and Institutional Quality in Resource Oriented Countries”

Kartseva M. (2002) “The Duration of Unemployment in Russia: Does High Education Decrease Unemployment spells?”

Kassian G. (2002) “Mortality Crisis in Russia: Evidence from International Panel Data”

NES Annual Report 2005-2006 99

Khoroshilov Yu. (1998) “Financial Industrial Groups Cost Monitoring and Why Bank Owns Firms”

Kleiman D. (1999) “Tax Evasion and Corruption in Fiscal Administration”

Kolenikov S. (1999) “The Methods of the Quality of Life Assessment”

Kopylov I. (1998) “Financial Industrial Groups and Managerial Hidden Actions”

Kovtunenko B. (1999) “The War of Attrition with Expected Changes of Future Terms”

Kozlov K. (1999) “Impact of Financial Industrial Group Membership on Export Competitiveness of Russian Firms”

Kulaev S. (2005) “Patent Breadth and Antitrust Policy in Cumulative Innovation”

Kushnir A. (2006) “Collective Action Problem in Revolutions”

Kuznetsov A. (2003) “Crisis of 1998 and Determinants of Stable Development of a Bank”

Loukoinova E. (1999) “Intergovernmental Transfers in Russia: the Case of Volga Cities”

Makarov D. (2003) “Industrial Policy and Lobbying: can Weak Government Correct Market Failures?”

Makarov I. (2000) “Two Essays on Barter and Corporate Governance in Russia”

Malenko A. (2006) “Oligarchic Capitalism and Financial Development”

Manaenkov D. (2000) “What Determines the Region of Location of an FDI Project? An Empirical Assessment”

Melentieva N. (2000) “FDI in Russia: The Effect of Foreign Ownership on Productivity”

Mikusheva A. (2002) “Information Aggregation and Efficiency in Auctions”

Mironov M. (2003) “Small Business Environment and Investment Climate”

Mityakov S. (2002) “Oligarchy, Democratization and the «Brain Drain»”

Moiseev A. (2000) “Analysis of Influence of the “Dutch Disease” and Taxation on Economic Welfare: Example of Russian Economy”

Mouraviev I. (1999) “Bringing Real Money Balances into the Dutch Disease Problem”

Muravyev D. (2006) “Do Russian Mutual Funds Overperform the Market?”

Nekipelov D. (2003) “Analysis of Inter-Sectoral Labor Flows in Russia”

Novikov D. (1999) “Modeling the Demand for Russian Government Securities from Non-residents”

Orlov E. (2000) “Government Subsidies to Russian Firms: Efficient or Not?”

Paltseva E. (1998) “Modeling Inflationary Expectations: the Case of Russia”

Panova E. (1998) “The “Shadow” Sector and Economic Growth”

Perekhodtsev D. (1999) “Impact of Russian Ruble Devaluation on Trade and Currencies of the CIS Countries”

Piankov N. (1998) “Financial and Industrial Groups in Russia”

NES Annual Report 2005-2006 100 Ponomareva E. (2001) “The Distributional Impact of Reforms in the Housing and Communal Sector in Russia”

Ponomareva M. (2000) “Do Governors Protect Firms from Paying Federal Taxes?”

Ponomareva N. (2000) “Are There Positive or Negative Spillovers from Foreign-owned to Domestic Firms?”

Potekhin I. (2006) “Role of Attitude to Risk in the Migration Decision-Making”

Proudnichenko D. (2002) “Industrial Policy and Growth in Transition Economies”

Rachinsky A. (2001) “Managerial Turnover and Firm Performance in Russia”

Ravichev A. (2001) “Electoral Cycles in Russian Regions”

Rewenko S. (2001) “Russian Federalism: Competitive or Not?”

Savvateev A. (1998) “Production and Rent-seeking Behavior”

Semenov A. (2004) “The Innovations in the Economy with Exhaustible Resource Sector”

Shakin D. (2003) “High Frequency Data in the Russian Stock Market”

Shapiro D. (2001) “Political Incentives and Investment Climate”

Sheynzon I. (2005) “The Equilibrium Current Account: Can Precautionary Saving Motive Outweigh the High Returns on Capital in Russia?”

Skovoroda R. (1999) “Estimation of Demand Responses to a Price Change under the Paucity of the Data”

Slinko I. (1999) “Multiple Jobs, Wage Arrears, Tax Evasion and Supply in Russia”

Smirnov V. (1998) “Optimal Investment in Development of New Technology (The Exponential Distribution Case)”

Suvorov A. (1999) “Barter and Long-term Relations”

Spryskov D. (2000) “Persistent Poverty in Russia”

Stepanov S. (2000) “Privatization of Natural Monopolies under Asymmetric Information”

Strebulaev I. (1999) “A Timing Model of the Russian Currency Crisis: Cases of Non-Linear Behavior, Uncertainty, and Devaluation Expectations”

Tarasov A. (2003) “Endogenous Growth, Education and Intellectual Property Rights”

Tcherkachine I. (2003) “Russia's Accession to WTO: Labor Demand Story”

Tonis A. (1998) “Rent-seeking Technologies: Analysis and Modeling”

Turmuhambetova G. (1998) “The Development of the GKO Market in Russia”

Vasnev A. (2001) “A Nonparametric Method for Bootstrap Resampling in Autoregressions”

Volchkova N. (1998) “Russian Financial-Industrial Groups in International Markets”

Yakovlev E. (2001) “State Capture in Russian Regions and Municipalities”

Zak N. (2006) “The Mysterious Market for Drugs and Vaccines”

Zakolyukina A. (2006) “Politically Connected Firms: Effect on Bankruptcy”

NES Annual Report 2005-2006 101

Zhabitskaya E. (2003) “When do Subsidies to Competing Innovators Stimulate Technological Progress?”

Zhukova N. (2006) “Resource Abundance and Economic Growth: the Role of Institutional Development”

Working Papers

Akhmedov A., Bessonova E., Cherkashin I., Denisova I., Grishina E., Nekipelov D. (2004) “WTO Accession and the Labor Market: estimations for Russia”

Anatolyev S. (2006) “A unifying view of some predictability tests”

Anatolyev S. (2004) “Three Essays on Econometrics of Moment Conditions in Time Series”

Anatolyev S., Gerko A., Shakin D., Kryukovskaya O. (2004) “Dynamics and Predictability in Russian Financial Markets”

Anatolyev S., Ovtcharova G. (2001) “Capital expenditures financing in Russia”

Anatolyev S., Shabalin A. (2006) “Model complexity and model performance”

Andrienko Yu. (2001) “Factors of Crime Growth in Russia: Regional Approach”

Bessonova E., Kozlov K., and Yudaeva K. (2003) “Trade Liberalization, Foreign Direct Investment, and Productivity of Russian”

Bremzen A., Egorov G., Shakin D. (2006) “Electoral Mandate and Voting Behavior: Evidence from Russian State Duma”

Chernavsky S., Eismont O. (2006) “Prospects for a Liberalized Natural Gas Market in Russia”

Denisova I., Kartseva M. (2006) “Poverty is no crime: measuring poverty in Russian regions”

Deviatov A., Ickes B. (2006) “Reputation and the Soft-Budget Constraint”

Dvorkovich A., Gurvich E. (1999) “Analysis of the GKO/OFZ Interest Rates”

Egorov G., Sonin K. (2005) “Dictators and Their Viziers: Agency Problems in Dictatorships Working”

Eismont O. (2000) “World Oil Price Fluctuations and Development of the Russian Economy”

Eismont O., Kuralbaeva K. (1999) “Depletion of Natural Resources and Long-Term Perspectives of the Russian Economy”

Enikolopov R., Zhuravskaya E. (2003) “Decentralization and Political Institutions”

Friedman L. (2000) “Globalization: OECD and Developing Countries”

Friedman L. (1998) “Science in a Transitional Society: Russia in the World Context”

Friedman L., Melyantsev V., Vidiassov M. (1998) “Governmental Expenditure (consumption) and Economic Growth”

Golovan S., Evdokimov M., Karminsky A., Peresetsky A. (2004) “Probability of Default Models of Russian Banks II. Models and Macroeconomic Environmen”t

Golovan S., Karminsky A., Kopylov A., Peresetsky A. (2003) “Probability of Default Models of Russian Banks I. Models with Clustering”

NES Annual Report 2005-2006 102 Golovko E., Sidorov V., Peresetsky A., Karminsky A., A. H. O. van Soest. (2002) “Analysis of Russian Banks Ratings”

Goriaev A., Sonin K. (2006) “Is Political Risk Company-Specific? The Market Side of the Yukos Affair”

Grobman I. and Peresetsky A. (1999) “Analysis of the Stock Market Performance at the Pre-crisis Period October 1997—August 1998”

Guriev S. (2001) “Rent-seeking and barter in Russia”

Guriev S. (1999) “A Theory of Informative Red Tape with an Application to Top-Level Corruption”

Guriev S., Ickes B.W. (2000) “Barter in Russia”

Guriev S., Kvasov D. (2006) “Imperfect Competition in Financial Markets and Capital Structure”

Guriev S., Kvassov D. (2000) “Barter for price Discrimination?”

Gurvich E. (2002) “The Distributional Impact of Pension Reform in Russia”

Gurvich E. (2001) “Looking Back at the Russian Financial Crisis”

Haile P., Hortacsu A., Kosenok G. (2006) “On the Empirical Content of Quantal Response Equilibrium”

Karminsky A., Peresetsky A., Golovan S. (2005) ”Bank’s Rating Models. Dynamics and Comparison“

Katyshev P., Polterovich V. (2006) “Reform policies, initial conditions, and transformational recession”

Levin M. (1999) “Corruption and Technological Innovation”

Makarov V., Dankov A. (2002) “Regional and Electoral Competition: a Comparative Analysis of the Influence of Political Institutions”

Marhuenda F., Vasin A., Vasina P. (2003) “Tax Optimization: the Role of Informational Asymmetries”

Marhuenda F.H., Vasin A., Vasina P. (2001) “Tax Enforcement for Heterogeneous Firms”

Mikusheva A., Sonin K. (2002) “Information Revelation and Effciency in Auctions”

Mokhtari M., Grafova I. (2000) “The Russian Federation at Crossroads: Tax Collection and Corruption”

Overland J., Spagat M. (1998) “Political Instability, Foreign Investment and Growth in Proprietary Economics”

Peresetsky A., Karminsky A., Golovan S. (2006) “Retail business of Russian banks. Heterogeneity of interest rates on private deposits”

Polishchuk L., Firsov E. (2006) “Cause-related marketing: an economic analysis”

Polterovich V. (2001) “Rent-seeking, Tax Policy and Economic Growth”

Polterovich V. (1998) “Institutional Traps and Economic Reforms Voronovitsky M. Cross-ownership and Opportunity of Reciprocal Investment in Russian Industrial Groups”

Polterovich V., Popov V. (2006) “Democratization, Quality of Institutions and Economic Growth”

Polterovich V., Tonis A. (2006) “Hiring Strategies and the Evolution of Honesty”

Polterovich V., Tonis A. (2005) “Innovation and Imitation at Various Stages of Development: A Model with Capital”

Rachinsky A. (2005) “Energy Sector Reform: on the Way to Free Market”

NES Annual Report 2005-2006 103

Rockinger M., Urga G. (2000) “The Evolution of Stock Markets in Central and Eastern Europe”

Schwarz M., Sonin K. (2002) “The Variable Value Environment: Auctions and Actions”

Sonin K. (2002) “Why the Rich May Favor Poor Protection of Property Rights”

Sotskov A. (2004) “Effect of Tax and Monetary Government’s Policy and the Society Losses”

Sotskov A. (2003) “Time-consistent Government Policies in the Sidrausky's Model”

Sotskov A. (2000) “Characterization of Competitive Allocations and the Nash Bargaining Problem”

Tonis A. (2003) “Promoting Growth: Rent-Seeking as a Cause of Failure”

Tonis A. (2001) “State Patronage over Firms: a Model of Endogenous Regulation”

Vasin A., Vasina P. (2006) “Electricity Markets Analysis and Design”

Vasin A., Vasina P. (2005) “Homogeneous Good Markets and Auctions”

Vasin A., Gontmacher K., Sosina Yu. (2003) “On the Optimal Distribution of Informational Resources in the Electoral Competition”

Vasin A., Vasina P. (2001) “Tax Optimization under Tax Evasion”

Vasin A., Vasina P. (2000) “The optimal Tax Enforcement under Imperfect Taxpayers and Auditors”

Vasin A., Panova E. (1999) “Tax Collection and Corruption in Fiscal Administration”

Volchkova N. (2001) “Does Financial-Industrial Group Membership Affect Fixed Investment: Evidence from Russia”

Volchkova N., Gorshkova E., Lobanov S., Turdyeva N., Khaleeva J., Yudaeva K. (2006) “Microsimulation analysis of the consequencies of monetization of social benefits in Russia”

Voronovitsky M. (1999) “Cross-ownership and Opportunity of Reciprocal Investment in Russian Industrial Groups”

Yudaeva K., Kozlov K., Melentieva N., and Ponomareva N. (2001) “Does Foreign Ownership Matter? Russian Experience”

Zamulin O., Sosunov K., Sheynzon I. (2006) “The Equilibrium Current Account in Russia: How Important is the Precautionary Saving Motive?”

Zhuravskaya E., Ponomareva M. (2001) “Federal Tax Arrears: Liquidity Problems, Federal Subsidies, or Regional Protection?”

NES Annual Report 2005-2006 104 Lectures Notes

Anatolyev S. (2005) “Intermediate and advanced econometrics: problems and solutions”

Anatolyev S. (2004) “Lecture Notes: Intermediate Econometrics”

Anatolyev S. (2003) “Lecture Notes: Advanced Econometrics”

Anatolyev S. (2002) “Intermediate and Advanced Econometrics: Problems and Solutions”

Anatolyev S. (2002) “Lecture Notes: Intermediate Econometrics”

Belenky V. (2001) “Optimal Control: maximum principal and dynamic programming”

Bremzen A., Guriev S. (2005) “Lecture notes on contract theory”

Danilov V. (2002) “Lectures on Game Theory”

Danilov V. (1998) “Lectures on Fixed Points”

Golovan S., Guriev S., Makrushin A. (2005) ”Problems in contract theory”

Golovan S., Guriev S., Makrushin A. (2005) ”Сontract theory: problems and solutions”

Kolenikov S. (2001) “Applied Econometric Analysis with STATA”

Polishchuk L. (2003) “Microeconomic Theory: Asymmetric Information and Public Goods”

Polterovich V., Zamulin O., Sossounov K., Pekarski S. (2005) “Lecture notes on macroeconomic theory: Intermediate level”

Sotskov A., Kolesnik G. (2002) “Optimal Control: Problems and Solutions”

Vasin A. (2005) “Evolutionary and Repeated Games”

NES Annual Report 2005-2006 105 Appendix 7: Background Information on Students

Class of 2006 GEOGRAPHIC # NAME SEX D.O.B. INSTITUTION OF PRIOR STUDY DEGREE ORIGIN Applied Physics Dept., Moscow Institute 1 Eugeny Abramov M 29.03.82 Orenburg Diploma of Physics and Technology Anzhero- Economics Dept., Novosibirsk State 2 Pavel Abramov M 11.12.81 Diploma Sudzhensk University Applied Math and Economics Dept., 3 Vasily Akimov M 16.01.81 Moscow Moscow Institute of Physics and Diploma Technology Economics Dept., Novosibirsk State 4 Grigory Akshonov M 22.06.82 Novosibirsk Diploma University Economics Dept., Novosibirsk State 5 Igor Alekseev* M 05.06.80 Novosibirsk Diploma University Economics Dept., Higher School of 6 Alexander Apokin M 07.06.83 Moscow 5 year Economics Ufa, Economic Dept., Ufa State Aviation 7 Dinara Bayazitova F 16.11.80 Diploma Bashkortostan Technical University Balashikha, Economic Dept., Moscow State 8 Sergey Belousov M 26.06.83 Moscow 5 year University Region Computational Math and Cybernetics 9 Fedor Bizikov M 11.07.81 Moscow Diploma Dept., Moscow State University Valentina Physics Dept., Belarusian State 10 F 14.12.76 Minsk Diploma Bogomolova University Applied Physics Dept., Moscow Institute 11 Ilya Bruhanov M 17.11.81 Barnaul Diploma of Physics and Technology Computational Cybernetics and Math 12 Eugene Vasin** M 04.06.81 Moscow Diploma Dept., Moscow State University Korablino, Physics Dept., Ryazan State Radio 13 Sergey Vlasov M 11.07.79 Ryazan Diploma Engineering Academy Region Economics Dept., Higher School of 14 Natalie Volodina F 20.03.81 Moscow Diploma Economics Andrey Sevastopol, 15 M 03.03.80 Math Dept., Moscow State University Diploma Voltornist* Ukraine Economic Dept., Novosibirsk State 16 Ilya Vorobiev M 22.04.82 Novosibirsk Diploma University Applied Math and Economics Dept., Alexander 17 M 14.10.81 Zaporozhje Moscow Institute of Physics and Diploma Gorbenko Technology Ekaterina Computational Math and Cybernetics 18 F 28.08.81 Severodvinsk Diploma Gorshkova Dept., Moscow State University Applied Math Dept., North Ossetian 19 Albina Dzhioeva F 15.07.80 Vladikavkaz Diploma State University Reutov, Applied Math and Economics Dept., 20 Kirill Evdokimov M 05.03.82 Moscow Moscow Institute of Physics and Diploma Region Technology Kolomna, Economics Dept., Moscow State 21 Alexei Zabotkin M 02.08.77 Moscow Diploma University Region Applied Math Dept., Moscow Institute of 22 Marat Zaidullin* M 09.12.82 Yekaterinburg Diploma Physics and Technology

NES Annual Report 2005-2006 106 Economics Dept., Higher School of 23 Roman Silberman M 19.12.83 Cheliabinsk Diploma Economics Applied Physics Dept., Moscow Institute 24 Grigory Karasev M 23.09.82 Simferopol Diploma of Physics and Technology Alexander Leninsk- Economics Dept., Novosibirsk State 25 M 16.11.81 Diploma Korotkov Kuznetskiy University 26 Sergey Lobanov M 13.03.80 Moscow Math Dept., Moscow State University Diploma Kaliningrad, 27 Sergey Lytchagin M 02.08.81 Moscow Math Dept., Moscow State University Diploma Region Khotkovo, 28 Alexey Lyubimov M 13.08.80 Moscow Physics Dept., Moscow State University Diploma Region Applied Math and Economics Dept., Ruslan 29 M 25.12.79 Yevpatoriya Moscow Institute of Physics and Diploma Mavlikhanov Technology Lytkarino, Applied Physics Dept., Moscow Institute Diploma 30 Eugeny Oreshkin M 24.12.82 Moscow of Physics and Technology Region 31 Maxim Osadchiy M 13.10.63 Novosibirsk Physics Dept., Moscow State University Diploma Economics Dept., Novosibirsk State 32 Sergey Popov M 26.09.82 Novosibirsk Diploma University Almaty International Relations Dept., Kazakhstan 33 Yerlan Ramazanov M 06.06.82 Diploma Region State University Diploma; 34 Sergey Rtishchev M 29.03.80 Voronezh Math Dept., Moscow State University Post- graduate Alexander 35 M 10.01.80 Moscow Math Dept., Moscow State University Diploma Rumyantsev Special Mashinery Dept., Bauman 36 Timur Salikov M 01.08.82 Moscow Diploma Moscow State Technical University Diploma; Mikhail 37 M 17.11.79 Moscow Math Dept., Moscow State University Staroverov Post- graduate Applied Physics and Math Dept., Khmelnitskiy, 38 Pavel Stetsenko M 07.12.81 Moscow Institute of Physics and Diploma Ukraine Technology Tjumen Economics Dept., Novosibirsk State 39 Yury Stolbov M 31.07.82 Diploma Region University Berdsk, Alexander Economics Dept., Novosibirsk State 40 M 07.06.82 Novosibirsk Diploma Tarasenko University Region 41 Dzambolat Tulatov M 12.03.79 Vladikavkaz Engineering Dept., Bogazici University Diploma History Dept., St. Petersburg State 42 Eugeny Firsov** M 13.09.77 St. Petersburg Diploma University Special Mashinery Dept., Bauman 43 Pavel Fomin M 02.05.82 Moscow Diploma Moscow State Technical University Zhukovsky, 44 Konstantin Khorev M 05.10.81 Moscow Math Dept., Moscow State University Diploma Region Anton Applied Physics Dept., Moscow Institute 45 M 14.06.82 Moscow Diploma Cheremukhin of Physics and Technology Vadim Applied Math Dept., Moscow State 46 M 02.03.78 Moscow Diploma Cherepanov Institute of Electronics and Mathematics Applied Math and Economics Dept., Ruslan 47 M 25.12.80 Vladivostok Moscow Institute of Physics and Diploma Churbanov** Technology

NES Annual Report 2005-2006 107 Diana 48 F 24.07.82 Kazan Math Dept., Moscow State University Diploma Shamsutdinova** Sociology Dept., Moscow State 49 Eugeny Sheyenko M 16.01.81 Moscow Diploma University 50 Ilya Sheinzon M 28.02.82 Moscow Math Dept., Moscow State University Diploma 51 Oleg Shibanov M 10.06.81 Izhevsk Math Dept., Moscow State University Diploma Economics Dept., Higher School of 52 Alexey Shishkin M 09.04.81 Kirov Diploma Economics Applied Math and Economics Dept., 53 Mikhail Shmonov M 23.02.83 Arzamas-16 Moscow Institute of Physics and Diploma Technology * Non-graduate **Returned from Academic leave.

Class of 2007 GEOGRAPHIC # NAME SEX D.O.B. INSTITUTION OF PRIOR STUDY DEGREE ORIGIN Nikolay 1 M 14.03.83 Kutaisi Finance Dept., Russian New University Diploma Anuashvili 2 Babin Petr M 23.09.82 Moscow Math Dept., Moscow State University Diploma 3 Belkin Alexey M 14.05.84 Yekaterinburg Physics Dept., Moscow State University Diploma 4 Belkin Anton M 14.05.84 Yekaterinburg Physics Dept., Moscow State University Diploma Applied Math and Physics Dept., 5 Belousov Fedor M 06.04.83 Moscow Diploma Moscow Aviation Institute Diploma 6 Belyakov Anton M 18.01.77 Severodvinsk Math Dept., Moscow State University Post- graduate studies Applied Math and Physics Dept., 7 Alexey Bessonov M 15.09.83 Lipetsk Moscow Institute of Physics and Diploma* Technology 8 Volgin Alexandr M 07.09.83 Saratov Finance Dept., Saratov State University Diploma Economic Dept., Moscow State 9 Boris Gershman M 03.03.85 Moscow 5 year University Applied Physics Dept., Moscow Institute 10 Artem Getz M 28.01.84 Novosibirsk Diploma* of Physics and Technology Economic Dept., Novosibirsk State 11 Tatiana Gizbrecht F 17.11.83 Novosibirsk Diploma Univeristy Applied Math Dept., Moscow Institute of 12 Sergey Daylovskiy M 25.10.84 Petrozavodsk Diploma* Physics and Technology Physics Dept., Novosibirsk State 13 Artem Danilov M 15.01.84 Novosibirsk Diploma* University 14 Pavel Danilov M 08.05.82 Artemovsky Financial Dept., Ural State University Diploma Robotics and Complex Automation 15 Danila Deliya M 21.08.82 Astrakhan Dept., Moscow State Technical 6 year University n.a. Bauman Khimki, Economic Dept., State University of 16 Elena Dmitrieva F 20.02.84 Moscow Diploma* Human Sciences Region Sergey 17 M 17.01.82 Moscow Math Dept., Moscow State University Diploma Dobrovolskiy Elena 18 F 11.07.84 Klinovsk Math Dept., Moscow State University Diploma Dresvjannikova Computational Math and Cybernetics 19 Svetlana Dubinets F 25.02.84 Moscow 5 year Dept., Moscow State University

NES Annual Report 2005-2006 108 Alexander 20 M 10.09.83 Novosibirsk Math Dept., Novosibirsk State University Diploma* Doobniakov 21 Igor Dubovskiy M 20.01.84 Moscow Physical Dept., Moscow State University 5 year Banking, International College of 22 Alexander Eremin M 26.06.84 Karaganda Economics and Finance, Higher School Diploma* of Economics Applied Physics and Math Dept., 23 Alexandr Zhdanov M 06.02.82 Syktyvkar Moscow Institute of Physics and 5 year Technology Applied Math Dept., Moscow Institute of 24 Sergey Zhuk M 08.10.82 Tcherepovets 5 year Physics and Technology 25 Oleksiy Zabirnik M 13.12.81 Kharkov Math Dept., Moscow State University Diploma 26 Elena Zenkova F 02.11.83 St. Petersburg Math Dept., Novosibirsk State University Diploma* International College of Economics and 27 Mikhail Zlobin M 28.09.85 Moscow Diploma* Finance, Higher School of Economics 28 Alexander Zozulya M 16.12.83 Moscow Math Dept., Moscow State University 5 year Computational Math and Cybernetics 29 Alexander Ivanov M 23.04.85 Moscow Diploma Dept., Moscow State University Economic Dept., Novosibirsk State 30 Daniil Ivanov M 02.07.84 Novosibirsk Diploma* University Maria 31 F 28.01.84 Krasnoyarsk Math Dept., Novosibirsk State University 5 year Karbovskaya Computational Math and Cybernetics 32 Ivan Kasholkin M 09.02.85 Moscow 5 year Dept., Moscow State University 33 Semen Kibalin M 20.05.83 Tchita Math Dept., Novosibirsk State Univeristy Diploma Special Machinery Dept., Moscow State 34 Vasily Kitaev M 30.11.81 Stavropol Diploma Technical University n.a. Bauman Computational Math and Cybernetics 33 Victor Kitov M 30.11.82 Moscow Diploma Dept., Moscow State University Computational Math and Cybernetics 34 Anna Koval F 20.01.84 Moscow Diploma Dept., Moscow State University Applied Physics Dept., Moscow Institute 35 Anton Kolotilin M 12.06.84 Barnaul Diploma* of Physics and Technology 36 Anna Kosterina F 09.02.83 Moscow Math Dept., Moscow State University Diploma Ekaterina 37 F 08.09.83 Omsk Math Dept., Moscow State University Diploma Krasnenko Tchernogolovka, Elena 38 F 30.12.83 Moscow Institute of Asian and African Studies Diploma Kulakovskaya Region Zhanna Applied Math Dept., People Friendship 39 F 02.11.82 Tbilisi Diploma* Kulidzhanova University of Russia

Alexander Applied Math Dept., Moscow Institute of 40 M 11.10.84 Miass Diploma* Kutyuhin Physics and Technology

Applied Math Dept., Moscow Institute of 41 Vadim Kuchinsky M 22.04.84 Zhitomir Diploma* Physics and Technology Management Dept., Izhevsk State 42 Mikhail Leonov M 29.06.83 Votkinsk Diploma Technical University Applied Physics Dept., Moscow Institute 43 Dmitry Lisin M 22.06.84 Zaporozhye Diploma* of Physics and Technology Physical and Quantum Electronics, 44 Andrey Liskovich M 02.12.84 Zaporozhye Moscow Institute of Physics and Diploma* Technology Tchernogolovka, 45 Uliana Loginova F 18.08.84 Moscow Math Dept., Moscow State University 5 year Region

NES Annual Report 2005-2006 109 The Institute of Asian and African 46 Sergey Magruk M 23.07.82 Novodnestrovsk Diploma Studies Molecular and Biology Physics Dept., Evgeniya 47 F 29.08.82 Moscow Moscow Institute of Physics and Diploma Mogilevskaya Technology Physical and Quantum Electronics, 48 Alexander Mukhin M 31.12.81 Arzamas-16 Moscow Institute of Physics and Diploma Technology Physical and Quantum Electronics, Andrei 49 M 01.05.83 Yekaterinburg Moscow Institute of Physics and Diploma Miakonkikh Technology Troitsk, Problems of Physics and Power 50 Vladimir Nazin M 12.10.84 Moscow Engineering Dept., Moscow Institute of 5 year Region Physics and Technology Economic Dept., Moscow State 51 Sergey Nikonov M 06.07.84 Moscow Diploma* University Computational Math and Cybernetics 52 Fedor Pak M 16.12.84 Tashkent Diploma* Dept., Moscow State University 53 Kirill Panov M 18.12.81 Ust’-Kamenogorsk Math Dept., Moscow State University Diploma Economic Dept., Novosibirsk State 54 Dmitry Perfilyev M 13.06.84 Irkutsk Diploma* Univrsity Vladislav Istra, Moscow Applied Math Dept., Moscow Institute of 55 M 01.08.84 5 year Petryakov Region Physics and Technology 56 Ivan Pivovarov M 05.10.83 Moscow Physics Dept., Moscow State University 5 year Chasov Yar, Special Machinery Dept., Moscow State 57 Eduard Pilipenko M 31.08.82 Diploma Ukraine Technical University n.a. Bauman Mikhail 58 M 20.04.79 Moscow Math Dept., Moscow State University Diploma Plotnikov** Computational Math and Cybernetics 59 Pavel Popikov M 08.01.84 Moscow Diploma Dept., Moscow State University Maxim 60 M 11.06.82 Novosibirsk Math Dept., Novosibirsk State University Diploma* Predtechenskiy Applied Math Dept., Moscow Institute of 61 Sergey Rafikov M 08.09.82 Perm Diploma Physics and Technology Alexander Applied Math Dept., Moscow Institute of 62 M 19.11.83 Moscow Diploma Rogozhin Physics and Technology The International College of Economics 63 Olga Rozanova F 22.05.84 Moscow and Finance, Higher School of Diploma* Economics Computational Math and Cybernetics 64 Vitaliy Rud M 30.03.84 Moscow Diploma Dept., Moscow State University Computational Math and Cybernetics 65 Anna Savelieva F 23.05.83 Moscow Diploma Dept., Moscow State University Daniil Informatics Dept., Moscow State 66 M 25.12.80 Pyatigorsk Diploma Sadovskiy**** Technical University n.a. Bauman Computational Math and Cybernetics 67 Ivan Safonov M 13.01.84 Moscow Diploma Dept., Moscow State University Applied Physics Dept., Moscow Institute 68 Dmitro Sergeyev M 22.09.84 Kiev, Ukraine 5 year of Physics and Technology Computational Math and Cybernetics 69 Denis Stepanov M 27.05.84 Voronezh Diploma Dept., Moscow State University Fryazino, Computational Math and Cybernetics 70 Victoria Stepanova F 14.08.83 Moscow Diploma Dept., Moscow State University Region Novosibirsk 71 Antonina Sorokina F 30.04.83 Math Dept., Novosibirsk State University Diploma Region 72 Alexey Sorokin M 27.08.81 Kaluga Math Dept., Moscow State University Diploma

NES Annual Report 2005-2006 110 Dolgoprudny, Applied Physics Dept., Moscow Institute 73 Nikolay Storonskiy M 21.06.84 Moscow Diploma* of Physics and Technology Region Computational Math and Cybernetics 74 Berik Taspikhova M 03.08.83 Almaty Diploma Dept., Moscow State University Konstantin 75 M 24.06.83 Moscow Math Dept., Moscow State University Diploma Tikhonov 76 Boris Ustyugov M 11.06.78 Kurgan Math Dept., Novosibirsk State University Diploma Novo- 77 Olga Fedonkina F 08.07.83 Math Dept., Novosibirsk State University Diploma Alexandrovsk Problems of Physics and Power 78 Michael Filkin M 28.05.82 Severodonetsk Engineering Dept., Moscow Institute of Diploma Physics and Technology Aerophysics Dept., Moscow Institute of 79 Andriy Fomenko M 25.12.82 Donetsk Diploma Physics and Technology 80 Alexey Kholodov M 29.12.82 Voronezh Math Dept., Moscow State University Diploma Velikiy Applied Physics Dept., Moscow Institute 81 Denis Chetverikov M 25.07.84 6 year Ustyug of Physics and Technology Alexander Applied Math Dept., Moscow Institute of 82 M 14.11.83 Donetsk 6 year Tsependa Physics and Technology 83 Artem Shamgunov M 18.08.82 Elista Math Dept., Moscow State University Diploma Applied Physics Dept., Moscow Institute 84 Pavel Shvetsov M 07.11.83 Kirov Diploma* of Physics and Technology Applied Physics Dept., Moscow Institute 85 Konstantin Shirkin M 17.04.83 Michurinsk Diploma* of Physics and Technology Applied Math Dept., Moscow Institute of 86 Daniil Shchetnikov M 17.06.84 Vladivistok Diploma* Physics and Technology * Represents a Diploma equivalent to an undergraduate degree (BA). All other degrees listed as Diploma without an asterisk represent advanced degrees. ** Returned from Academic leave. *** Granted academic leave. **** Expelled due to unsatisfactory attendance and/or performance. ***** Withdrew from coursework.

NES Annual Report 2005-2006 111 Appendix 8: Applicant Profile 2006

% Among them

of TSA Men % Women % Total # of Students Applied (TSA): 211 100,0 159 75,4 52 24,6 Moscow Applicants 173 82,0 131 75,7 42 24,3 Regional Applicants: 38 18,0 28 73,7 10 26,3 Novosibirsk 25 11,8 19 76,0 6 24,0 Yekaterinburg 5 2,4 5 100,0 00 St. Petersburg 3 1,4 3 100,0 0 0 Vladivostok 5 2,4 1 20,0 480,0 Profile: Average age 22,4 22,4 22,6 Married 13 6,2 8 61,5 538,5 Muscovites 60 28,4 44 73,3 1626,7 Need dormitories 101 47,9 78 77,2 23 22,8 Educational Background and Degrees: Mathematics 83 39,3 58 69,9 2530,1 Physics 50 23,7 46 92,0 4 8,0 Economics 28 13,3 16 57,1 1242,9 Post-graduate students at other U 50 23,7 39 78,0 11 22,0 Plan to pursue studies at PhD 79 37,4 58 73,4 21 26,6 NES Preparatory courses – English NES Preparatory courses – Math Main Institutions Students Came From: Moscow State University 81 38,4 63 77,8 18 22,2 Mosc. Inst. of Physics and Techn. 70 33,2 64 91,4 6 8,6 Novosibirsk State University 29 13,7 20 69,0 9 31,0 Higher School of Economics 17 8,0 6 35,3 11 64,7 Sources of Information about NES Booklet (spravochnik) 1 0,5 1 100,0 0 0 Poster in University 8 3,8 6 75,0 2 25,0 Friends 156 73,9 116 74,4 4025,6 Internet 12 5,7 11 91,7 18,3 NES Presentations 30 14,2 23 76,7 7 23,3

NES Annual Report 2005-2006 112 Appendix 9: Placement of Class of 2006

# Name Placement 1. Levon Atanassian Moscow 2. Oleg Baranov University of Maryland, Economics 3. Dmitry Benjko Severstaltrans, Financial Manager, Moscow 4. Rostislav Purdue University, PhD in Economics Bogoslovsky 5. Sofia Borisova Center for Strategic Research, Expert, Moscow 6. Maria Bulycheva Panov and Partners, Investment Company, Financial Analyst 7. Yaroslav Volkov CEFIR, Economist, Moscow 8. Julia Voloshina ОАО “Lukoil”, Economist, Moscow 9. Maxim Vorobjov International Moscow Bank, Treasury, Officer, Moscow 10. Tatiana Viatkina MSU post-graduate studies, Moscow 11. Alexey Galanin Moscow 12. Alexander Glebov Moscow 13. Constantin Golyaev University of Minnesota, Ph.D. in Economics 14. Olga Gorelkina MPSE (University of Toulouse-1), Master of Economic Theory and Econometrics 15. Anna Grishina Moscow 16. Timur Gusmanov Evrazholding, Financial Analysis Dept., Specialist, Moscow 17. Michail Dubovichev Severstaltrans, Financial Manager, Moscow 18. Stanislav Dyachkov Ruyan, Financial Analyst, Moscow 19. Alexandra Evtifyeva Stockholm School of Economics, PhD, Sweden 20. Nikita Zhelezny Troika Dialog Asset Management, Junior Trader, Moscow 21. Nadezhda Zhukova Stanford Graduate School of Business, PhD in Finance, USA 22. Larisa Zaytseva Moscow 23. Nicolay Zak Stecklov Mathematical Institute, post-graduate studies 24. Anastasia Stanford, CA, USA Zakoljukina 25. Darya Kaygorodtseva International Moscow Bank, Treasury, Officer, Moscow 26. Alexander Kalenik Moscow 27. Georgy Kartashov Deutsche UFG, Research Department, Analyst, Moscow 28. Sergey Kovbasyuk MPSE (University of Toulouse-1), Master of Economic Theory and Econometrics 29. Jana Kovrigina SUEK, Financial Analysis and Hedging Department, Chief Economist, Moscow 30. Olga Kostyurina Trioka Dialog, Intern, Moscow 31. Irina Kuznetsova Carlos III de Madrid, PhD in Business Administration and Quantitative Methods 32. Alexey Kushnir Pennsylvania State University, PhD in Economics 33. Ivan Lazarev Stanford Graduate School of Business, PhD in Economic Analysis and Policy 34. Olga Lampe American Appraisal, Analyst 35. Andrey Lesnyh Moscow 36. Vladislav Leontyev Moscow 37. Dmitry Lisitsin Moscow 38. Irina Luschevskay Moscow 39. Ia Malahova Alfa-Bank, Risk Management Dept., Risk Analyst, Moscow 40. Andrey Malenko Stanford University, Graduate School of Business, PhD in Finance 41. Jury Malyavkin Moscow 42. Olga Martynova ING Bank, Corporate Finance Department, Analyst 43. Dmitry International Moscow Bank, Treasury, Moscow Marushkevich

NES Annual Report 2005-2006 113 44. Ekaterina KPMG Marushkevich 45. Egor Matveev William E. Simon School of Business Administration, University of Rochester, USA, PhD in Finance 46. Dmitry Muraviev Moscow 47. Ksenya Panidi Universite Libre de Bruxelles (ECARES), Ph.D., Brussels, Belgium 48. Elena Pastuhova Standard&Poor's, Governance Services, Analyst, Moscow 49. Natalya Pereljdik Moscow 50. Constantin Petrov Princeton Partners Group, Consulting, Moscow 51. Ivan Potehin Moscow 52. Constantin UBS, Research, Analyst, Moscow Pravednikov 53. Tatiana Prokina Deutsche Bank, Global Markets, DCM Sales 54. Bella Rabinovich Worldbank, Projects Consultant 55. Alexander Padaev Moscow 56. Andrey Pachkov Princeton University, PhD in Economics 57. Nikita Roketsky New York University, Department of Economics, PhD student 58. Ruslan Sadriev Accenture, CHT, Analyst, Moscow 59. Vadim Safonov Moscow 60. Ljubov Startseva Colliers International, Real Property Department, Consultant 61. Elena Suslova Wermuth Asset Management, Analyst 62. Elena Truhacheva Moscow 63. Jana Uhaneva Moscow 64. Igor Khmel Moscow 65. Constantin Moscow Chernyshev 66. Egor Tchistyakov McKinsey&Company, Research Analyst 67. Olga Shatalova Moscow 68. Ivan Shkrebela CEFIR, Economist, Moscow 69. Julia Shkurat Moscow 70. Alexander ING bank, Corporate Finance, Analyst, Moscow Shulzhenko

NES Annual Report 2005-2006 114 Appendix 10: NES Directory

Name Phone E-mail Rector Sergei Guriev Ext. 122 [email protected] First Vice-Rector, Victor Polterovich 124-68-46, [email protected] Head of Academic Committee (499) 724-2468 President Valery Makarov 129-1011 [email protected] Adviser to the President Alexandr Fridman (499) 724-2452 [email protected] Coordinator, International Advisory Board Erik Berglof +44-207-338-68-05 (UK) [email protected] Treasurer, American Friends of NES Barry W. Ickes +1-814-863-2652 (USA) [email protected] Deans of Students’ Office: Vice-Rector for Academic and Students Affairs Zarema Kassabieva Ext. 117 [email protected] Academic Administrator Tatiana Terekhova Ext. 118 [email protected] Financial Director Oxana Budjko Ext. 104 [email protected] Academic Secretary Valentina Krupina Ext. 153 [email protected] Secretary of Academic Committee Pavel Katyshev Ext. 240 [email protected] Director for Development Alexei Sitnikov Ext. 113 [email protected] Development Officer Natalia Fokina Ext. 145 [email protected] Deputy Chair of the Admissions Committee Andrei Bremzen Ext. 133 [email protected] Admissions Secretary, Olga Kulagina Ext. 103 [email protected] Preparatory Courses Coordinator Computer and Internet Dept.: Department Head Anatoly Akinshin Ext. 110 [email protected] Software Engineer Sergei Prilutsky Ext. 211 [email protected] Library: Head Librarian Larissa Kryuchkhova Ext. 235 [email protected] Librarian Elena Gorodnicheva Ext. 235 [email protected] English Instruction Dept.: Department Head Olesya Marenkina 332-4458 [email protected] Instructor Valeria Salistra [email protected] Instructor Regina Burdonskaya Research Center: Director Stanislav Anatolyev Ext. 134 [email protected] Coordinator Olga Kryukovskaya Ext. 237 [email protected] Outreach Center: Director Oleg Zamulin Ext. 121 [email protected] Director of Econometrics Project Anatoly Peresetsky Ext. 140 [email protected] Faculty: Stanislav Anatolyev Ext. 134 [email protected] Andrei Bremzen Ext. 133 [email protected] Irina Denisova 105-5002, ext. 218 [email protected] Alexei Deviatov Ext. 124 [email protected] Alexei Goriaev Ext. 212 [email protected] Sergei Guriev Ext. 122 [email protected] Grigory Kosenok Ext. 119 [email protected] Valery Makarov 129-1011 [email protected] Victor Polterovich (499) 724-2468 [email protected] Vladimir Popov Ext. 116 [email protected] Alexei Savvateev Ext. 136 [email protected] Konstantin Sonin 105-5002, ext. 225 [email protected] Sergey Stepanov 105-5002, ext. 214 [email protected] Anton Suvorov Ext. 120 [email protected] Ksenia Yudaeva 725-7806 [email protected] Oleg Zamulin Ext. 121 [email protected] Ekaterina Zhuravskaya 105-5002, ext. 226 [email protected] Accounts Dept.: Chief Accountant Julia Kushnarenko Ext. 138 [email protected] Deputy Accountant Elena Brizhan Ext. 123 [email protected] Accountant Elena Skildeeva Ext. 123 [email protected] Accountant Cashier Yulia Gurskaya Ext. 238 [email protected] Office Manager Maria Bolotskaya 105-5002, ext. 200 [email protected] Maintenance Engineer Ivan Ivanyuk Ext. 156 [email protected] Administrative Assistant Anastasia Avdieva Ext. 105 [email protected] Address Nakhimovsky Prospect, 47, Suite 1721, Moscow 117418, Russia Phone (+7-495) 129-3911; 129-3844; 129-3239; 129-1700; 129-4611 Fax (+7-495) 129-3722 E-mail [email protected] Homepage http://www.nes.ru

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NES Annual Report 2005-2006