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

New Economic School Annual Report, 2003—2004

Moscow, September 2004 TABLE OF CONTENTS

INTRODUCTION...... 4 ACADEMIC PROGRAM...... 7

PROGRAM 2003—2004 ...... 7 NES ACADEMIC REQUIREMENTS 2003—2004...... 9 FACULTY AND RESEARCH ...... 11

FULL-TIME FACULTY MEMBERS...... 11 Tenured Faculty ...... 11 Tenure-Track Faculty...... 11 PART-TIME FACULTY MEMBERS...... 12 VISITING FACULTY ...... 12 NES/CEFIR PUBLIC SEMINARS 2003—2004...... 13 CEFIR/NES FACULTY SEMINARS 2003—2004 ...... 13 THE ZVI GRILICHES DISTINGUISHED LECTURES ...... 15 RESEARCH OVERVIEW ...... 15 RESEARCH PROJECTS 2002—2003...... 16 RESEARCH PROJECTS 2003—2004...... 17 RESEARCH CONFERENCES ...... 17 PUBLICATIONS ...... 18 Best Student Papers 2003...... 18 Working Papers 2003—2004 ...... 19 Lecture Notes 2003—2004 ...... 19 Selected Publications of NES Faculty...... 20 THE STUDENTS AND APPLICANTS...... 22

CURRENT STUDENTS: PROFILE ...... 22 Table 1: Students Enrolled at NES in 2003—2004...... 22 RECRUITING ACTIVITIES...... 22 Table 2: Comparative Statistics for the Applicants of 2003 and 2004...... 22 ADMISSION EXAMINATIONS...... 23 TUITION AND FINANCIAL AID ...... 24 Figure 1: Composition of the Entering Classes With Respect to Tuition Waivers ...... 24 GRADUATES AND ALUMNI ...... 25

GRADUATES 2003—2004...... 25 EMPLOYMENT AND ACADEMIC PLACEMENT OF ALUMNI...... 25 Figure 2: Share of Students Going on to Get a PhD ...... 26 Study Abroad...... 27 Academic Placement...... 27 OUTREACH...... 28

REGULAR OUTREACH WORKSHOPS ...... 28 Table 3: Workshops Participants ...... 28 OTHER ACTIVITIES...... 31 Regional Seminar for Excellence in Teaching...... 32 FACILITIES ...... 33

LIBRARY...... 33 COMPUTER RESOURCES ...... 34

NES Annual Report 2003—2004 2 FINANCES ...... 35

MAJOR FUNDERS ...... 35 Figure 3: Distribution of NES revenues in AY 2003-2004 by Source...... 35 AMERICAN FRIENDS OF NES (AFNES) ...... 35 FINANCIAL SUPPORT FROM RUSSIAN CHARITIES, BUSINESS AND INDIVIDUALS ...... 36 COST RECOVERY AND SELF-FINANCING ...... 36 Figure 4: Tuitions and loans in 2002—2005 ...... 36 Figure 5: Distribution of fees collected by NES in AY 2003—2004 from individuals...... 37 GOVERNANCE...... 38

INTERNATIONAL ADVISORY BOARD (IAB)...... 38 RUSSIAN ADVISORY BOARD (RAB) ...... 38 RECTORATE ...... 39 ACADEMIC COMMITTEE...... 39 ADMISSIONS COMMITTEE ...... 39 APPENDIXES ...... 41

APPENDIX 1: COURSE OFFERINGS FOR 2003—2004...... 41 Pre-Academic Year...... 41 Module I: 1 September — 26 October 2003 ...... 41 Module II: 27 October — 21 December 2003...... 43 Module III: 12 January — 7 March 2004...... 45 Module IV: 9 March — 30 April 2004...... 46 Module V: 10 May — 4 July 2004 ...... 49 English Language Instruction...... 49 APPENDIX 2: RESEARCH PROFILES OF THE TENURED-TRACK FACULTY...... 51 APPENDIX 3: THESES ABSTRACTS, 2003—2004 ...... 57 APPENDIX 4: SUMMARY OF RESEARCH PROJECTS, 2003-2004 ...... 73 APPENDIX 5: CONFERENCE PROGRAMS ...... 80 XIV Research Conference (October 2003) ...... 80 XV Research Conference (April 2004) ...... 83 APPENDIX 6: NES PUBLICATIONS, 1998—2004 ...... 86 Best Student Papers ...... 86 Working Papers ...... 89 Course of Lectures...... 91 APPENDIX 7: BACKGROUND INFORMATION ON STUDENTS...... 92 Class of 2004...... 92 Class of 2005...... 95 APPENDIX 8: APPLICANT PROFILES...... 98 Admission Campaign 2003 ...... 98 Admission Campaign 2004 ...... 99 APPENDIX 9: PLACEMENT OF NES GRADUATES, 2002—2004 ...... 100 Class of 2003...... 100 Class of 2004...... 102 APPENDIX 10: NES DIRECTORY ...... 104

NES Annual Report 2003—2004 3 INTRODUCTION

In December 2002 NES celebrated its tenth anniversary. The last two academic years have thus been opening of our second decade. Academically, NES proceeded steadily along a long-term upward development trend: the number of students has been increasing, as has the faculty of returning PhDs and others; the academic program has become richer, especially in courses devoted to "applied" specializations; the research activity of students and faculty has expanded and the number of research projects and publications has grown; and outreach activities have improved and deepened. The thriving Russian economy has created ample demand for NES graduates, somewhat reducing the number of applicants for PhD studies in the West. As before, most applicants for PhD programs are admitted to top schools in the US and increasingly in Europe. During the last two years, NES has expended its library collections and IT services. NES has become more visible both in Russia and abroad, and members of the NES community are taking part in conferences and seminars around the world.

The last two years have seen entering classes of more than 80 students and graduating classes of more than 50. The strategic plan’s goal of an entering class of 100-110 students will be met in the coming academic year. This recent growth trend is an outcome of intensive admission efforts that brought in more applicants and also better ones. In 2004 63% of applying students were accepted; 83% of accepted students eventually enrolled. The last figure is especially impressive given that only 30 students were admitted with full fellowship, 17 with half fellowship and about 75 with no fellowships at all. All paying students were offered a loan for the entire tuition and most chose this option. The fear that charging and raising tuition would discourage applicants was found to be exaggerated. Annual tuition was raised to $4000. NES invested great efforts in recruitment of students from the regions outside of Moscow and from other CIS countries. Information about NES was disseminated at 15 outreach workshops, NES has established direct cooperation with a number of leading Russian schools, preparatory courses are provided to potential applicants and entrance exams are administered in Novosibirsk, Vladivostok and Almaty (Kazakhstan). The outcome in terms of numbers still modest. For the entering class, there were only 38 applicants who took entrance tests at regional locations; only 12 of these students were admitted and 11 registered. Among Moscow applicants 26 (16%) more came to take exams from other cities. Clearly part of the problem is the poor preparation of the applicants provided by the regional universities. Part of the problem may still be the lack of adequate dissemination and, possibly constraints (mostly financial) preventing candidates from taking the entrance exams in Moscow. At the same time, many talented students from the regions come to Moscow at an earlier stage in their academic careers to study at local universities. As a result, the share of non-Moscovites among Moscow applicants was 88 percent.

In 2004, for the first time, NES issued graduating diplomas with an indication of fields of specialization. This is the outcome of the creation of a number of "special (applied) fields" of study, designed to better prepare the students for non-academic positions in the private and public sectors. All the graduates of the class of 2004 received diplomas with special fields, many of them in two and more fields. 32 students graduated with specializations in finance, and 39 specialized in other fields. We assume that this diversification of the academic program contributed to the smooth placement of our graduates in high quality jobs. The brisk demand for NES graduates in the Moscow market put pressure on a number of students to accept job offers before graduation, which can negatively affect their academic performance, and in some cases, prevent them from graduating at all. NES has been trying to meet this challenge by talking to both students and prospective employers, with some positive outcomes.

During the last two academic years NES appointed four new tenure track faculty members, three assistant professors and one senior appointment. Vladimir Popov was appointed full professor. Vladimir Popov is an established Russian economist who did his PhD in Moscow. At present Prof. Popov shares his time between NES and Carleton University in Canada. In September 2002 three new assistant professors joined NES: Alexei Deviatov (NES, 1996), who studied at Pennsylvania State University and specialized in monetary theory; Alexei Goriaev, who did his doctoral work in finance at Tilburg University, and Grigory Kosenok (NES, 1995) from the University of Wisconsin in the field of Industrial Organization. They will be joined in the fall of 2004 by two theorists, Andrei Bremzen from MIT and Anton Suvorov from Toulouse. Meanwhile, Kirill Sosunov, as an assistant professor at NES for the last four years, resigned from NES to assume a senior research position at the Open Economy Institute, a recently established think tank. Kirill will continue to teach and conduct research at NES. The Institute of the Open Economy is employing a significant number of NES graduates and we hope for continued fruitful cooperation.

NES Annual Report 2003—2004 4 While we regret Kirill’s move, we remind ourselves that one of NES’ missions is to train senior economists for the Russian economy at large, which includes other universities and think tanks. This in turn opens more doors for graduates of NES with Western training to return to Russia. We would like to be recruiting more new young faculty members than we have. NES failed over the last few years to attract a number of high-quality candidates from among its own graduates and other institutions. A number of them accepted tenure track positions in top universities such as MIT, Yale, LSE, Columbia, and Stanford Business School, which is a source of pride to all of us. Others, however, have preferred lesser positions to NES offer. This phenomenon may be explainedby the motivations underlying brain drain, as well as the growing salary gap and the failure of Russia to project an attractive enough living and working environment. A growing number of NES graduates that took positions in western universities are approaching the tenure decision, which may provide a good opportunity for NES to try to attract some of them. Tenure time is also approaching at NES; one procedure started a few months ago, and more will come next year. The growing indigenous faculty at NES reduces our need for visiting professors. Nevertheless, we continue to invite visitors to teach the (undergraduate level) introductory courses and to fill in gaps in special fields.

Research at NES is conducted along two separate routes. In the first, targeted research projects allow students to prepare their master theses and faculty members write papers on predetermined research topics. In the second, faculty conducted normal independent research work. During the last two years there have been nearly 15 research projects a year with more than 50 participating students. The papers coming out of this research program are presented in two annual conferences at NES. An increasing number of these papers are published in refereed journals, for example, a paper started within the NES research center in 2000 is forthcoming in the Quarterly Journal of Economics (see also NES faculty publication list, pp.19). However, the volume of publications is not yet satisfactory. In order to improve the research and publication record of the faculty, NES is increasing the number of visits by leading economists. During such visits, which typically last one to two weeks, the visitors present a series of 3-4 lectures, participate in research workshops and closely interact with the faculty. Most of these visits are jointly organized NES and CEFIR. NES also encourages its faculty to travel to conferences and work in universities abroad. Faculty members at NES are often taking part in international conferences in Europe and the US. Two faculty members recently accepted invitations to spend a sabbatical year abroad. It is also hoped that the approaching tenure decisions will serve for faculty members as an added incentive for increasing the number of publications.

On the governance and administrative fronts, the last two years saw a major overhaul of the accounting and reporting systems. Both processes were upgraded to electronic systems and new accountants were hired. The main deliberations, however, concentrated on the combined issues of governance reform. During 2003—04 a program of governance changes was prepared for implementation at the outset of the coming academic year, following its ratification by the IAB. The main elements include the creation of a Board of Governors as the main authority of NES; the election of a full-time rector and the creation of a post of President, and the appointment of an Executive Manager and an Executive Committee composed of the Rector and the main officers that will run NES on a daily basis. The IAB will continue to function as the top academic authority and will be responsible for academic appointments and promotions and the content of the academic program. American Friends of New Economic School (AFNES) will continue its efforts in financial support for NES. The Russian Advisory Board (RAB) will continue as a supporting and consulting board in Russia. All these changes will improve governance at NES and shift more responsibility to local people and to the younger generation. In this way NES will also prepare itself for the proposed merger with Center for Economic and Financial Research (CEFIR) and Economic Education and Research Consortium (EERC) whenever they happen. By creating appropriate administrative structures now, the eventual combination of CEFIR and EERC to NES will require only relatively minor additional changes in NES structure.

CEFIR and EERC’ move to the NES building a few years ago increased and intensified the level of cooperation between institutions. A new CEFIR/NES weekly faculty seminar acts as an ordinary department seminar and serves as a convenient meeting place to both faculties. A joint publication Economics Research and Education: Russia & CIS on new research further enhances cooperation between NES, CEFIR and EERC (http://www.eerc.ru/default.aspx?id=12). As for the merger itself, following long deliberations by Eurasia and the EERC Foundation, a positive decision on the merger was taken last fall and a consultant group was hired and has started to work. They are expected to produce their report later this year. We trust that the report will find a way to merge the three institutions in a way that produces the desired benefits, while addressing the particular needs and sensitivities of each of the three institutions.

NES Annual Report 2003—2004 5

In contrast with these academic and organizational developments, advance on the financial front at NES has been rather modest. The main achievement during the last two years was an increase in the financial support sourced in Russia. Three "quasi-chairs" were established, whereby donors commit to more or less permanent annual grants, which cover the operating costs of one faculty member. In addition there were a few smaller "studentship" grants and a number of research contracts. There was, however, little progress on financial support from the West. While most of the long-term donors of NES have been renewing their grants there are some difficulties in the negotiations with the Eurasia Foundation and uncertainty regarding a renewed grant from the World Bank (its current grant runs out in June 2005). The student loan fund which NES was trying to establish and finance over the last two years is not yet in place. It is hoped that the ongoing negotiations between the KMB bank in Moscow, Higher Education Support Program of Open Society Institute (HESP) and International Financial Corporation (IFC) will bear fruit. So far a modest student loan scheme has been run by AFNES and financed out of regular grant money. Until now a few dozen of students took at loans and only a handful (those who dropped out in the middle of studies) have started to repay. The repayment arte is very good. As was mentioned above, about 70 entering students were admitted to the incoming class on a tuition payment basis and most of them opted to take a loan, with others chosing to pay as they go. Unfortunately, there was almost no progress in our efforts to build an endowment for NES, and this remains a major challenge for the immediate future.

The changes in governance mentioned above will be accompanied by personal changes as well. Gur Ofer has announced his retirement as Chair of the IAB and it is proposed that he be replaced by Erik Bergloef. It is further proposed that Valery Makarov will be elected as President of NES and Sergei Guriev appointed Rector. Alexander Fridman will assume a position of Consultant to the President and Zarema Kasabieva will be elected as Vice Rector for student affairs. Maxim Boycko, the Chair of RAB will become the Chair of the Board of Governors.

As for myself, I plan stay for a while as a member of the IAB of NES and of the board of AFNES. Hopefully there will be an appropriate opportunity for my own thoughts on the first dozen years at NES and on the vision for the next dozen years and beyond.

The developments over the last two years are consistent in general with the strategic development plan of NES of a few years ago, though implementation has been somewhat slower with respect to faculty building and financial stability. It is hoped that the new government at NES will be able to accelerate these developments in the coming years and also to engage in new endeavors, most significantly a domestic PhD program. The first twelve years established NES, created its main features and scored initial successes. It is up to those who take over to develop and reshape it and to assure its longer term durability and impact.

Gur Ofer, IAB Coordinator

NES Annual Report 2003—2004 6 ACADEMIC PROGRAM

The New Economic School is committed to providing a Master’s level degree program in economics of a standard equal to that provided in 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 a range of elective courses dealing with a variety of applied topics and the special problems concerned with transition. These courses are comparable in content and standard to those offered in the framework of first year PhD programs at good universities in North America and Western Europe. Third, students are required to write a term paper and an MA thesis. This is done within the framework of the research projects undertaken by NES professors. The term papers and the theses are regarded as part of the training essential for a career as a professional economist.

In the last few years a larger number of our graduates have prefered to work in the private sector rather than continue their studies as PhD students. To meet their demand we have tryied to strengthen the applied side of our Academic Program. Our Academic Program includes an increasing number of applied courses such as Economics of Transition, Russian Financial System, Empirics of Financial Markets, Regulation and Applied Time Series Econometrics. In 2002—2003 we introduced on an experimental basis 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 was complaint that this system resulted in crowding out other courses that were not required for any special category. In 2003—2004 changes were made: Managerial Economics was omitted from specialization’s fields, reducing the minimum requirement for a special field to 5 courses, and 2 fields in Advanced Micro and Macro (theoretical rather than applied) were added. The last two fields were not popular, but we opted to keep the same system for the next academic year. In 2003-2004, all of the graduates received Diplomas with special fields, many of them with two or more fields.

The Academic Program for 2003—2004 and NES Academic Requirements are listed below. Appendix 1 contains the synopses of the courses. Program 2003—2004

Module 1, September 1 - October 17, Exams: 20 – 26 October Year 1 Course Professor(s) Year 2 Course Professor(s) Microeconomics 1 R.Gronau, O.Moav Macroeconomics 6 (required) O.Zamulin (one stream) Macroeconomics 1 O.Zamulin, T.Mikhailova Econometrics 4 (required) S.Anatolyev (one stream) Probability Theory S.Aivazian, P.Katyshev Investment Theory A.Goriaev Mathematics for V.Polterovich, E.Golstein, Recursive Macroeconomics I A.Deviatov Economists 1 A.Shananin, V.Bulavsky English English Dept.: Growth and Development* O.Moav O.Marenkina, V.Salistra, R.Burdonskaya, E.Lyapunova Labor Economics I * R.Gronau Economics of Transition V.Popov History of Economic Thought I R.Entov (required) English V.Salistra, (for intermediate level group) R.Burdonskaya

NES Annual Report 2003—2004 7 Module 2, October 27 – December 12, Exams: 15-21 December Year 1 Course Professor(s) Year 2 Course Professor(s) Microeconomics 2 G.Kosenok, Applied Time Series S.Anatolyev A.Tonis Econometrics Macroeconomics 2 V.Popov, Theory of Economic Reform* V.Polterovich Ch.Ruehl, P.Thompsen Mathematical S.Aivazian, Topics in Microeconomics: K.Sonin Statistics A.Peresetsky Auctions, Contracts Mathematics for A.Sotskov, Recursive Macroeconomics II A.Deviatov Economists 2 V.Bulavsky English English Dept. Russian Financial System E.Gurvich Industrial Organization 1* O.Eismont Empirics of Financial Markets A.Goriaev History of Economic Thought I R.Entov (required) Meeting of Research Groups (required) English V.Salistra, (for intermediate level group) R.Burdonskaya Module 3, January 12 – February 27, Exams: 1-7 March Year 1 Course Professor(s) Year 2 Course Professor(s) Microeconomics 3 L.Polishchuk Public Economics I* V.Makarov (two sections) Macroeconomics 3 V.Polterovich Industrial Organization II* G.Kosenok N.Volchkova Games 1 V.Danilov, International Trade* V.Polterovich A.Savvateev Econometrics 1 P.Katyshev, Political Economy K. Sonin A.Peresetsky English English Dept. Regulation O.Eismont Banking Ch.Ruehl Corporate Finance A.Goriaev Topics in Econometrics S.Anatolyev Russia in the Global L.Fridman Environment: Past and Present Meeting of Research Groups (required) English V.Salistra, (for intermediate level group) R.Burdonskaya Module 4, March 9 - April 23. Exams: April 26-30 Year 1 Course Professor(s) Year 2 Course Professor(s) Microeconomics 4 G.Kosenok Law and Economics L.Polishchuk (two sections) Macroeconomics 4 A.Deviatov Natural Resources O.Eismont (two sections) Games 2 V.Danilov, Public Economics II* L.Polishchuk A.Savvateev Econometrics 2 P.Katyshev, Trade Policy K.Yudaeva, A.Peresetsky N.Volchkova English English Dept. Labor Economics II* I.Denisova Open Macroeconomics* K.Sosunov Taxation and Non-Cooperative A.Vasin Games Monetary Theory A.Deviatov Economics of Corruption M.Levin Economic Policy in Russia Сh.Ruehl Meeting of Research Groups (required) English V.Salistra, (for intermediate level group) R.Burdonskaya

NES Annual Report 2003—2004 8 Module 5, May 10 - June 25. Exams: June 28 – July 4 Year 1 Course Professor(s) Year 2 Course Professor(s) Microeconomics 5 G.Kosenok Risk Management A.Goriaev A.Bremzen Macroeconomics 5 K.Sosunov International Finance G.Ovcharova (two sections) Comparative V.Popov Advanced Asset Pricing G.Ovcharova Economic Systems and CPE (elective) Econometrics 3 S.Anatolyev Contracts A.Bremzen (two sections) English English Dept. Data Analysis CANCELLED S.Kolenikov Meeting of Research Groups (required) English V.Salistra, (for intermediate level group) R.Burdonskaya The sign* means that the course belongs to a general field

NES Academic Requirements 2003—2004

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

1. One has to get 20.5 credits in total. 2. One has to get 14.5 credits for the Obligatory Courses (see Table 1). 3. One has to get not less than 1.5 credits for the General Fields (Table 2); some courses from at least three different General Fields have to be taken. 4. One has to get not less than 1 credit for the History of Economic Thought 5. Each student has to choose one out of three options: A) to get 3.5 credits for the General Fields (Table 2); B) to get 2.5 credits for one of the Special Fields described in Tables 3-6; C) to get 2.5 credits for one of the Special Fields, described in Tables 7-8, and not less than 2.0 credits for the General Fields (Table 2). 6. One has to write a term paper and Master Thesis. Second year students had to announce their choices not later than January 14, 2004.

Table 1. Obligatory Courses for all students No Course Credit 1 Macroeconomics 1-6 3.0 2 Microeconomics 1-5 2.5 3 Mathematics for Economists 1.0 4 Probabilities 0.5 5 Mathematical Statistics 0.5 6 Game Theory 1.0 7 Econometrics 1-4 2.0 8 History of Economic 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 Teacher 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 K.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 2003—2004 9

Table 3. Special Field: Finance No. Course Teacher 1. Corporate Finance A.Goriaev 2. Investment Theory A.Goriaev 3. Empirics of Financial Markets A.Goriaev 4. Banking C.Ruehl 5. Risk Management A.Goriaev 6. Applied Time Series Econometrics S.Anatolyev 7. International Finance G.Ovcharova 8. Advanced Asset Pricing G.Ovcharova

Table 4. Special Field: Data Analysis No Course Teacher 1 Applied Time Series Econometrics S.Anatolyev 2 Russia’s Financial System E.Gurvich 3 Transition V.Popov 4 Data Analysis S.Kolenikov 5 Russia in the Global Environment L.Fridman 6 Topics in Econometrics S.Anatolyev

Table 5. Special Field: Economic Policy No Course Teacher 1 Public Economics I V.Makarov 2 Public Economics II L.Polishchuk 3 Theory of Economic Reform V.Polterovich 4 Transition V.Popov 5 Regulation O.Eismont 6 Trade Policy K.Yudaeva, N.Volchkova 7 Political Economy K.Sonin 8 Russian Financial System E.Gurvich

Table 6. Special Field: Industrial Organization and Trade No Course Teacher 1 Industrial Organization I O.Eismont 2 Industrial Organization II G.Kosenok 3 Regulation O.Eismont 4 International Trade V.Polterovich 5 Contracts A.Bremzen 6 Topics in Microeconomics K.Sonin 7 Trade Policy K.Yudaeva, N.Volchkova

Table 7. Special Field: Microeconomics No Course Teacher 1 Contracts A.Bremzen 2 Topics in Microeconomics K.Sonin 3 Non-Cooperative Games A.Vasin 4 Law and Economics L.Polishchuk 5 Economics of Corruption M.Levin 6 Labor Economics I R.Gronau 7 Labor Economics II I.Denisova

Table 8. Special Field: Macroeconomics No Course Teacher 1 Monetary Theory II A.Deviatov 2 Recursive Macroeconomics I A.Deviatov 3 Recursive Macroeconomics II A.Deviatov 4 Open Macroeconomics K.Sosunov 5 Natural Resources O.Eismont 6 Growth and Development O.Moav 7 Applied Time Series Econometrics S.Anatolyev

NES Annual Report 2003—2004 10 FACULTY AND RESEARCH

The Faculty of NES consists of permanent full-time faculty, visiting professors from the West, and local instructors, mainly members of the Central Economics and Mathematics Institute of Russian Academy of Science (CEMI). Throughout the development of NES, the number of courses offered by Russian faculty has increased significantly, particularly following training programs in the West. Again this year, NES offered tenure-track positions to candidates with PhDs, specifically targeting NES graduates. In early 2004, NES hired two new tenure-track Assistant Professors, both NES graduates, to add to the 8 young faculty members. Andrei Bremzen holds a PhD in economics from MIT (2004). He graduates from NES in 1999 (cum laude) and the Moscow State University Moscow in 1997, ABD in mathematics (cum laude). His fields are Economic Theory and Industrial Organization. Anton Suvorov also started his education with mathematics and received a diploma with honors from Moscow State University in 1995 and a PhD from the same department in 1998. In 1999 he graduated from NES and entered Toulouse University, where received a DEA (Diplôme d’Etidus Approfondies, with mention “trés bien”) in Economic Theory and Econometrics in 2000, DEEQA (Diplôme Européen d’Economie Quantative Approfondie) in 2001 and a PhD (in January 2005). His research interests include Behavioral Economics, Contract Theory, Industrial Organization, and Corporate Finance.

In addition, a number of NES graduates with Western PhDs are in the process of completing their degree requirements, are teaching at NES as visiting professors, and providing instruction through outreach workshops. NES plans to make additional tenure-track appointments during the coming years in order to build a completely indigenous Russian faculty.

The following is a list of those who taught at NES during AY 2003-2004. See also Appendix 2 for research profiles of tenured-track faculty.

Full-Time Faculty Members

Tenured Faculty

Valery Makarov, Academician RAS, CEMI Vladimir Popov, Carleton University Public Economics Comparative Economic Systems and CPE, Macroeconomics 2, Transition Victor Polterovich, Academician RAS, CEMI Mathematics for Economists, Macroeconomics 3, International Trade, Theory of Economic Reform

Tenure-Track Faculty

Stanislav Anatolyev, Access Industries Assistant Professor of Economics, PhD Sergei Guriev, Human Capital Foundation (University of Wisconsin-Madison) Assistant Professor of Corporate Finance, PhD Econometrics 3, 4, Topics in Econometrics, Applied (doctorate in economics), post doc (MIT) Time Series Econometrics, Applied Econometrics In 2003-04 on leave to Princeton University as a Visiting Assistant Professor of Economics Alexei Deviatov, PhD (Pennsylvania State University) Grigory Kosenok, PhD (University of Recursive Macroeconomics 1, 2, Macroeconomics 4, Wisconsin-Madison) Monetary Theory Microeconomics 2, 4, 5, Industrial Organization 2

Alexei Goriaev, PhD in finance (Tilburg Konstantin Sonin, PhD in Mathematics University) (Moscow State University) Corporate Finance, Investment Theory, Empirics of Auction Theory and Mechanism Design, Political Financial Markets, Risk Management Economics

NES Annual Report 2003—2004 11 Kirill Sosunov, PhD (Australian National Oleg Zamulin, PhD (University of Michigan) University) Macroeconomics 1, 6 Macroeconomics 5, Open Macroeconomics

Part-Time Faculty Members

Sergei Aivazian, CEMI, RAS Mark Levin, CEMI, RAS Probability Theory; Mathematical Statistics Mathematics for Economists; Economics of corruption

Vladimir Bulavsky, CEMI, RAS Olesia Marenkina, RAS, NES Mathematics for Economists English

Regina Burdonskaya, NES Anatoly Peresetsky, NES; CEMI, RAS English Mathematical Statistics; Econometrics 1

Vladimir Danilov, CEMI, RAS Valeria Salistra, RAS Advanced Mathematics for Economists; Game Theory English

Irina Denisova, CEFIR Alexei Savvateev, NES; CEMI RAS Macroeconomics-2; Labor Economics Games

Oleg Eismont, Institute of Systems Analysis, RAS Alexander Shananin, Computer Center, RAS Natural Resources; Industrial Organization; Regulation Mathematics for Economists

Revold Entov, Institute of the World Economy Alexander Sotskov, CEMI and International Relations, RAS; HSE Mathematics for Economists History of Economic Thought Alexander Tonis (NES, 1998), NES; CEMI, Leonid Friedman, Moscow State University RAS Russia in the Global Environment: Past and Present Microeconomics 2

Evsey Gurvich, EEG Alexander Vasin, Moscow State University Russian Financial System Taxation and Non-Cooperative Games

Eugeny Golstein, CEMI, RAS Natalya Volchkova (NES, 1998), CEFIR Mathematics for Economists International Trade Policy; Macroeconomics

Pavel Katyshev, NES; CEMI, RAS Kseniya Yudaeva (NES, 1994), CEFIR Probability Theory; Econometrics 2 International Trade Policy; Macroeconomics

Visiting Faculty

Andrey Bremzen (NES, 1999), MIT Galina Ovtcharova (NES, 1995), Mendoza Contract Theory; Microeconomics College of Business International Finance; Advanced Asset Pricing Reuben Gronau, Hebrew University Microeconomics; Labor Economics Leonid Polishchuk, Maryland University Public Economics; Law and Economics Tatiana Mikhailova (NES, 1997), PSU Macroeconomics Christof Ruehl, World Bank Omer Moav, Hebrew University Banking; Economic Policy in Russia; Macroeconomics Microeconomics; Growth and Development Poul Thomsen, International Monetary Fund Macroeconomics

NES Annual Report 2003—2004 12 NES/CEFIR Public Seminars 2003—2004

NES jointly with CEFIR hosts regular public seminars in which visiting and Russian faculty members, as well as prominent Russian and non-Russian scholars and businessmen, present their research or work. Public 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 is a list of speakers for the academic year 2003—2004 (including job market candidates).

Olexii Birulin (NES, 1999), Pennsylvania Ildar Karimov, Deputy Chairman of the Executive State University Board of Alfa Bank Public Goods with Congestion: A Mechanism Managing a Bank by Key Performance Indicators Design Approach Grigory Kosenok (NES, 1995), NES Andrei Bremzen (NES, 1999), MIT Individually Rational, Balanced-Budget Bayesian Sequential Auctions with Entry Deterrence Mechanisms and the Informed Principal Problem

William Brumfield, Tulane University Tymofiy Mylovanov, Wisconsin-Madison Cultural Heritage and Economic Realities in the Optimal Authority: Veto Power Russian North Omer Moav, Hebrew University and NES Sebastian Edwards, UCLA The Mystery of Monogamy Exchange Rate Regimes, Capital Flows and Crisis Prevention Georgiy Nikitin, Boston University Plant Failure and Survival in the Indonesian Financial Boris Fedorov, Member Gazprom Board Crisis of Directors Petr Stolypin: I believe in Russia Russell Pittman, US Department of Justice and NES Edgar L. Feige, University of Wisconsin- Railways Reform in Russia: Will RZhD Be the Next Madison Gazprom? Taxation for the XXI Century Paul Seabright, Toulouse Will Goetzmann, Yale School of A Natural History of Economic Life Management Modeling and measuring Russian corporate Nikolay Shmelev, Institute of Europe of RAS governance: The case of Russian preferred and Some crucial Russian questions that still remains without common shares answers

Paul Gregory, University of Houston Guest Lectures by Oded Stark, Bonn University Political Economy of Stalinism: Archival Evidence On the Evolution of Altruism The Incentive to Migrate When Incomes Do Not Change Daniel Hamermesh, University of Texas The Brain Drain as an Incentive Device. How to Write a Paper for a Good Journal Alexei Zhdanov, University of Rochester Dmitry Furman, Institute of Europe of Capital Structure and Control Transactions RAS Russian Political System and It's Life Cycle

CEFIR/NES Faculty Seminars 2003—2004

Rudiger Ahrend, William Tompson, OECD Maxim Buev, Oxford University Economic Survey — Russian Federation 2004 Diverging Paths: Transition in the Presence of the Informal Sector Jacob Benus, IMPAQ International Impact Evaluation: International Experience

NES Annual Report 2003—2004 13 Artem Durnev (NES, 1996), University of Yulia Khaleeva (NES, 1998), CEFIR Miami Microsimulation of Income and Payroll Tax Reform in To Steal or Not to Steal: Firm Attributes, Legal Russia Environment, and Valuation Yulia Khaleeva (NES, 1998), Natalia Sebastian Edwards, UCLA Turdyeva (NES, 1995) and Natalia A Currency of One's Own? An Empirical Investigation Volchkova (NES, 1998), CEFIR on Dollarization and Independent Currency Unions Sales' Tax Abolition and VAT Reduction: Estimation of Economic Effects Using CGE Model and Georgy Egorov (NES, 2003), CEFIR/NES Microsimulations Dictators and Their Viziers: Agency Problems in Dictatorships Ivan Komarov, University of Maryland Barter in Russia in the 90-s Konstantin Fedorov (NES, 1997), Johns Hopkins University Andrei Kunov, Open Economy Institute Unemployment Duration and the NAIRU: An State Duma: Myths and Reality. Economic Legislation Empirical Investigation Analysis

Edgar L. Feige, University of Wisconsin- Andrei Kunov, Open Economy Institute Madison Assessing the Demand for Democratic Institutions: The The Dynamics of Currency Substitution, Asset case of Independent Mass Media Substitution and De Facto Dollarization and Euroization in Transition Countries Andrew Kydd, Harvard Department of Government Scott Gehlbach, University of Wisconsin- Which Side Are You On?: Bias, Credibility and Madison and Konstantin Sonin, CEFIR and Mediation NES Businessman Candidates Tatiana Mikhailova, Pennsylvania State University and NES Andrei Gomberg, Centro de Investigacion Counterfactual Analysis of Russian Economic Economica Geography: the Cost of the Cold Group Decision-Making in Ultimatum Bargaining: An Experimental Study Sergei Mishin, Institute of Control Sciences of RAS Alexei Goriaev, NES Optimal Structure of Management International Diversification Benefits for Russian Investors Dmitry Novikov, Institute of Control Sciences of RAS Pertti Haaparanta, Tuuli Juurikkala, Helsinki Reflexive Games School of Economics Firms, Local Authorities and Provision of Public Robert Owen, University of Nantes Services Globalization, Sunk Costs and Economic Methodology

Daniel Hamermesh, University of Texas Elena Panova (NES, 1998), GREMAQ, The Nature of Discrimination: Beauty in the Classroom Toulouse and Gender in the American Economic Association The Coherence of Political Action: A Case Against Independence Daniel Hamermesh, University of Texas The Effect of College Curriculum On Earnings: William Pyle, Middlebury College Accounting for Non-Ignorable Non-Response Bias Reputation Flows: Contractual Disputes and the Channels for Inter-firm Communication Andrei Illarionov (NES RAB member), Adviser to the President of Russia Ilya Rainer, Harvard University Kyoto protocol: should we ratify it or not? The Modern Impact of Pre-colonial Centralization in Africa Glenn Jenkins, Queens University Information, Corruption, and Measures for the Bulat Sanditov, Maastricht University Promotion of Manufactured Exports ICT Revolution, Globalization, and Informational Lock-in

NES Annual Report 2003—2004 14 Paul Seabright, Toulouse Joshua Tucker, Princeton University Efficiencies and Intangible Assets in Mergers And Pathways to Partisanship in New Democracies: Evidence Acquisitions from Russia

Mark Shankerman, LSE, CEPR and EBRD Irina Tytell-Dolinskaya (NES, 1994), Suffolk Incentives and Invention in Universities University and IMF Does Globalization Induce Better Macroeconomic Konstantin Sonin (NES, 1998), NES, CEFIR Policies Conflicts and Commitments Ilya Voskoboinikov, HSE Anton Suvorov (NES, 1999), Universite de Estimation of Total Factor Productivity in the Russian Toulouse Economy in 1961-2001, With Fixed Capital Addiction to Rewards Revaluation

Hans Timmer, World Bank Andrei Yakovlev, HSE Presentation of the annual report The Global Interaction of Groups of Interests in Modern Russia and Development Finance 2004 Its Impact on Economic Reforms

The 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 made many trips to NES. He taught econometrics, and helped shape the NES program in econometrics. Zvi also helped 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. He was the Godfatherof the New Economic School. In 2001 in Zvi’s memory, the International Advisory Board of NES, with the full approval of the NES community, decided to establish a series of lectures in economics, “The Zvi Griliches Distinguished Lectures,” an annual lecture series presented by a leading economist. They are open to economic community in Russia and to the general public.

The first series of lectures, Understanding Movements in Unemployment, was given in November 2001 at NES by Olivier Blanchard, Chair of the Economics Department of MIT and member of the IAB of NES. In December 2002, a lecture on Recent Developments in Applied Industrial Organization delivered Ariel Pakes, Professor of Economics in Harvard University.

The third Zvi Griliches Distinguished Lectures took place in December 2003 and were presented by Professor Roger Myerson, William C. Norby Professor of Economics of the University of Chicago. The first lecture, Justice, Institutions, and Multiple Equilibria, was given on 4 December 2003. The second and third lectures, Leadership, Trust, and Constitutions and Bipolar Multicandidate Elections with Corruption were given on 5 and 8 December 2003.

Research Overview

The NES Research Center was opened in 1995 and since then more than 80 research projects have been conducted by some 400 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 during academic year 2003—2004). The best Master’s theses are published in the Best Student Papers series. Project leader’ papers are publishing as NES Working Papers. Many of these are presented at various international and domestic conferences, and are published in economic journals. NES conducts two annual research conferences in April and October.

NES Annual Report 2003—2004 15 The Research Committee of the School oversees research at NES. The Committee is composed of members of the International Advisory Board of NES and permanent faculty members of NES. The members for AY 2003-2004 were as follows:

Professor Barry W. Ickes Co-Chairman Academician Valery Makarov Co-Chairman Professor Stanislav Anatolyev Director Ludmila Solntseva Coordinator Professor Gur Ofer

Research Projects 2002—2003

1. Dynamics and Predictability in Russian Financial Markets Leader: Stanislav Anatolyev (NES)

2. The Effect of WTO Accession on Russia: Estimations of the Effect on Separate Industries, and Overall Effects Leaders: Irina Denisova (CEFIR), Kseniya Yudaeva (CEFIR)

3. Topics of the Theory of Money Leader: Alexei Deviatov (NES)

4. Evaluating Performance and Strategy of Mutual Funds Leader: Alexei Goriaev (NES)

5. Institutional Constraints to the Growth of Small Businesses in Russia Leaders: Sergei Guriev (NES), Leonid Polishchuk

6. Technology Transfer, Innovations, and Economic Growth in a Transition Economy Leaders: Victor Polterovich (NES, CEMI), Vladimir Popov (NES)

7. A Basic Health Care Package for Russia Leader: Judith Shapiro (NES)

8. Tax Optimization: the Role of Informational Asymmetries Leaders: Alexander Vasin, Francisco Marhuenda

9. Trend of the Banking Sector in Russia and Bank Ratings II Leaders: Anatoly Peresetsky (NES), Alexander Karminsky (Center for Banks and Finance Technologies) Consultant: A. H. O. van Soest (Tilburg University, Netherlands)

10. Topics in Economic Theory Leader: Konstantin Sonin (NES, CEFIR) Consultant: Ariane Lambert-Mogiliansky (CERAS-ENPC, Paris)

11. The New Economy: E-commerce and E-government in Russia Leader: Valery Makarov (NES)

12. Empirical Issues of Industrial Organization Leader: Grigory Kosenok (NES)

13. The Behavior of the Real Exchange Rates Leaders: Krill Sosunov (NES), Oleg Zamulin (NES)

14. Restructuring the Russian Electricity Sector Leaders: Oleg Eismont (NES), Geoffrey Rothwel (Stanford University), Oleg Ordin (Institute of Financial Studies)

NES Annual Report 2003—2004 16 Research Projects 2003—2004

1. Dynamics in Russian and Other Financial Markets Leader: Stanislav Anatolyev (NES) Consultant: Dick van Dijk (Econometric Institute, Erasmus University Rotterdam, Netherlands)

2. Portfolio Management Leader: Alexei Goriaev (NES) Consultant: Theo E. Nijman (Tilburg University, the Netherlands)

3. University System and Labor Market in Russia Leaders: Irina Denisova (CEFIR), Leonid Polishchuk (Maryland University at College Park)

4. Topics of the Theory of Money Leader: Alexei Deviatov (NES) Effects of Government Policies in Equilibrium Macroeconomic Models Leader: Alexander Sotskov (CEMI)

5. Trend of the Banking Sector in Russia and Bank Ratings III Leaders: Anatoly Peresetsky (NES), Alexander Karminsky (MGTU, Gazprombank) Consultant: Bertrand Melenberg (Tilburg University, Netherlands)

6. Repeated Economic Interactions: Imperfect Monitoring and Regulation Leaders: Grigory Kosenok (NES) Consultant: Ariane Lambert-Mogiliansky (CERAS-ENPC, Paris)

7. New Economics and Internet: Russian Experience Leader: Valery Makarov (NES)

8. Globalization and Economic Growth in Developing and Transition Economies Leaders: Victor Polterovich (NES, CEMI), Vladimir Popov (NES, Carleton University, Canada)

9. Special-Interest Politics, Democratic Credibility, and Industrial Structure Leader: Konstantin Sonin (NES, CEFIR) Consultant: Scott Gehlbach (University of Wisconsin, Madison)

10. Monetary Policy in Transition Leaders: Kirill Sosunov (NES), Oleg Zamulin (NES)

11. Models of Competition via Supply Functions with Application to the Network Auctions (Network Auctions) Leader: Alexander Vasin (MSU) Consultants: Francisco Marhuenda, Polina Vasina

12. Some Aspects of the Performance of Russian Enterprises: Electricity Consumption and Innovation Activity Leader: Natalia Volchkova (CEFIR) Consultant: Kseniya Yudaeva (CEFIR)

13. Electricity Restructuring and Regulatory Reform in Russia Leader :Oleg Eismont (NES)

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

Between 1995 and 2004 the NES Research Center organized fifteen conferences in which the results of the Center's research projects were presented. They gave NES an opportunity to demonstrate to a wider research community in Moscow the types of research being undertaken. The conferences were attended

NES Annual Report 2003—2004 17 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 an end-of the year conference where papers reporting on each of the Center's projects are presented by leaders of each project. 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. Internationally reknown economists and practitioners’ participation to the conferences intensifies discussions of current economic problems and attract broader audience. Speakers in last two years have included Vito Tanzi, Senior Consultant of Inter-American Development Bank; Peter Aven, President of Alfa Bank; Justin Lin, Professor of Beijing University; Reuben Gronau, Professor of Hebrew University; Sergey Vasiliev, Member of the Federation Council, Chair of the Council of Federation Committee on Financial Markets and Currency Circulation; Grigory Yavlinsky, Leader YABLOKO fraction: State Duma of the Russian Federation; Janos Kornai, Professor of Harvard University and Collegium Budapest; Benjamin Bental, Professor of Haifa University; Andrei Kozlov, First Deputy Chairman of the Central Bank of Russia.

The programs of the 2003—2004 year conferences are included in Appendix 5. Publications

In 1998, three working paper series were initiated at NES. One series presents the recent research of NES-affiliated faculty and staff; the second series is devoted to the best papers prepared by NES students in their thesis work. Electronic versions of most of these papers are available through the NES homepage on the World Wide Web. In all, 72 Best Student Papers, 48 Working Papers, and 10 Lectures Notes have been published in English and/or Russian. The 8 Best Student Papers of the Class of 2004 are in print now (not included in the list below). The publications are disseminated to the most prominent Russian universities and economic research institutes as well as Western transition economics research centers.

The list of NES publications for the AY 2003-2004 period appears below. A comprehensive list of NES publications appears in Appendix 6.

Best Student Papers 2003

Garshin V. Macroeconomic Factors as Determinants of Stable Bank Development

Makarov D. Industrial Policy and Lobbying: Can Weak Government Correct Market Failures?

Kuznetsov A. Crisis of 1998 and Determinants of Stable Development of a Bank

Shakin D. High Frequency Data in the Russian Stock Market

Tcherkachine I. Russia's Accession to WTO: Labor Demand Story

Gerko A. Market Efficiency: Statistical vs. Trading Approaches

Gvozdenko D. The Development of the Common European Economic Space between Russia and the EU

Alekseev A. 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

Zhabitskaya E. When do Subsidies to Competing Innovators Stimulate Technological Progress?

Tarasov A. Endogenous Growth, Education and Intellectual Property Rights

NES Annual Report 2003—2004 18 Mironov M. Small Business Environment and Investment Climate

Chukmaitova A. Determinants of Life Expectancy and Mortality: Comparative Analysis of Different Regions in Kazakhstan

Nekipelov D. Analysis of Inter-Sectoral Labor Flows in Russia

Working Papers 2003—2004

Sotskov A. Time-consistent Government Policies in the Sidrausky's Model

Tonis A. Promoting Growth: Rent-seeking as a Cause of Failure

Enikolopov R., Zhuravskaya E. Decentralization and Political Institutions

Bessonova E., Kozlov K., and Yudaeva K. Trade Liberalization, Foreign Direct Investment, and Productivity of Russian

Vasin A., Gontmacher K., Sosina Y. On the Optimal Distribution of Informational Resources in the Electoral Competition

Golovan S., Karminsky A., Kopylov A., Peresetsky A. Probability of Default Models of Russian Banks I. Models with Clustering

Marhuenda F., Vasin A., Vasina P. Tax Optimization: the Role of Informational Asymmetries

Anatolyev S. Three Essays on Econometrics of Moment Conditions in Time Series

Anatolyev S., Gerko A., Shakin D., Kryukovskaya O. Dynamics and Predictability in Russian Financial Markets

Golovan S., Evdokimov M., Karminsky A., Peresetsky A. Probability of Default Models of Russian Banks II. Models and macroeconomic environment

Akhmedov A., Bessonova E., Cherkashin I., Denisova I., Grishina E., Nekipelov D. WTO Accession and the Labor Market: Estimations for Russia

Sotskov A. Effects of Tax and Monetary Government's Policy and the Society Losses

Lecture Notes 2003—2004

Anatolyev S. Lecture Notes: Advanced Econometrics

Polishchuk L. Microeconomic Theory: Asymmetric Information and Public Goods

Anatolyev S. Lecture Notes: Intermediate Econometrics

NES Annual Report 2003—2004 19 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 last two years.

Stanislav Anatolyev (2004) “Inference When a Nuisance Parameter is Weakly Identified under the Null Hypothesis”. Economics Letters, Vol. 84, No. 2, pp. 247–256.

(2003) “The Form of the Optimal Nonlinear Instrument for Multiperiod Conditional Moment Restrictions”. Econometric Theory, Vol. 19, No. 4, pp. 602−609.

Sergei Guriev (2004) “Red Tape and Corruption”. Journal of Development Economics, Volume 73, Issue 2, Pages 489-504.

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

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

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

Victor Polterovich (2004) “Accumulation of Foreign Exchange Reserves and Long Term Economic Growth” (co- authored with V. Popov). - In: Slavic Eurasia's Integration into the World Economy. Ed. By S. Tabata and A. Iwashita. Slavic Research Center, Hokkaido University.

(2003) “Institutional Traps: How to Get Out?” Economic Transformation and Evolutionary Theory of J. Shumpeter. The 5th International Symposium on Evolutionary Economics, Puschino, September 25-27, 2003, 130-143.

Vladimir Popov (2004) “Down and Up the Stairs: Paradoxes of Russian Economic Growth”. Co-authored with M. Gorban, N. Volchkova, and K. Yudaeva. - In: The Economic Prospects of the CIS. Ed. By G. Ofer and R. Pomfret. Edward Elgar Publishing.

(2004) “Accumulation of Foreign Exchange Reserves and Long Term Economic Growth” (co- authored with V. Polterovich). - In: Slavic Eurasia's Integration into the World Economy. Ed. By S. Tabata and A. Iwashita. Slavic Research Center, Hokkaido University.

(2003) “Currency Crises in Russia and Other Transition Economies”. - In: International Financial Governance under Stress. Global Structures versus National Imperatives. Edited by Geoffrey R. D. Underhill, Xiaoke Zhang, Cambridge University Press.

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

Alexander Sotskov (2003) “Characterization of Competitive allocations and the Nash Bargaining Problem”. In Advances in Economic Theory. Eds. M.Sertel and S.Koray, Springer-Verlag, Berlin.

Alexander Vasin (2003) “Cournot Equilibrium and Competition via Supply Functions” (with N. Durakovich, P. Vasina), Game Theory and Applications, Nova Science Publishers, vol.9, New York, p. 181-191.

NES Annual Report 2003—2004 20 (2003) “Price Competition in Oligopoly: the Conditions of Convergence to and Deviation from Walrasian Equilibrium”. International Journal of Mathematics, Game Theory and Algebra, v.13, N.1, pp.15-29.

Natalia Volchkova (2004) “Down and Up the Stairs: Paradoxes of Russian Economic Growth” (with M. Gorban, V.Popov, and K. Yudaeva) in "The Economic Prospects of the CIS: Sources of Long Term Growth", G. Ofer and R. Pomfred (eds.), Edward Elgar Publishing Ltd.

Ksenia Yudaeva (2004) “New Political Economy of Russia” (with E. Berglöf, A. Kunov and J. Shvets). MIT Press.

(2004) “Down and Up the Stairs: Paradoxes of Russian Economic Growth” (with M. Gorban, V.Popov, and N. Volchkova) in "The Economic Prospects of the CIS: Sources of Long Term Growth", G. Ofer and R. Pomfred (eds.), Edward Elgar Publishing Ltd.

NES Annual Report 2003—2004 21 THE STUDENTS AND APPLICANTS

This section profiles our current students at entry, and provides a description of our recruiting activities and the applicant profiles. Current Students: Profile The following section provides a demographic profile of the first and second year students enrolled at NES in the academic year 2003-2004. 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 2003—2004 CLASS OF 2004 CLASS OF 2005 % % Admitted 88 82 Total # of registered students (Sept. 2003) 64 100% 80 100% Profile of regular students Average age 24 22,7 Men 45 70,3% 67 83,8% Women 19 29,7% 13 16,2 Married 9 14,1% 6 7,5% Live in dormitories provided by NES 22 34,4% 21 26,3% Educational background and degrees: Mathematics 39 60,9% 36 45% Physics 4 6,3% 11 13,8% Economics 14 21,9% 24 30% Students at other Universities 36 56,3% 30 37,5% Plan to pursue studies at the PhD level 24 37,5% 28 35% Citizenship Russia, Ukraine, Russia, Ukraine, Kazakhstan, Kazakhstan, Moldova, Byelorussia Kyrgyzstan, Uzbekistan, Turkmenistan, Tajikistan

Recruiting Activities

In July 2003 admission exams were held in Moscow, Novosibirsk and Almaty (Kazakhstan). In summer 2004, examination was also held in Vladivostok in the Russian Far East to give applicants from that region the opportunity to take the exams without traveling to Moscow. See below the comparative data for the applicants of 2003 and 2004.

Table 2: Comparative Statistics for the Applicants of 2003 and 2004 City 2003 2004 Applied Accepted Enrolled Applied Accepted* Enrolled Moscow 135 88 72 158 110 91 Novosibirsk 14 10 9 23 10 9

Almaty 22 1 1 7 0 0 Vladivostok - - - 8 2 2 Total 171 97 82 196 122 102 * Including those from the waiting list.

Appendix 8 provides information about the individuals applying to NES in the summers of 2003 and 2004. Because of NES’ reputation, the applicants pool consists mostly of students with high grades in baccalaureate programs and strong confidence in their being admitted. Consistent with last year’s

NES Annual Report 2003—2004 22 applicant pool, the number of students applying to NES has remained high in comparison with previous years.

In order to attract the most prepared perspective applicants NES representatives conducted 17 open houses and presentations (largely in conjunction with the Outreach workshops) between November 2003 and June 2004, in the following cities and locations:

In Moscow: New Economic School (3 open houses), Moscow Institute of Physics and Technology Moscow State University

In Russia, outside Moscow: Chelyabinsk, South-Urals State U. Astrakhan, Astrakhan State U. Novosibirsk, Novosibirsk State U. Voronezh, Voronezh State U. Saratov, Saratov State Social-economics U. Ekaterinburg, Ural State U. Khabarovsk, Institute of economic research Far Eastern Branch of RAS Vladivostok, Far–Eastern State U.

In the FSU, outside Russia: Vilnius, Lithuania, U. of Vilnius Tashkent, Uzbekistan, Tashkent State Technical U. Tashkent, Uzbekistan, Tax Academy Almaty, Kazakhstan, Kazakh National U.

NES devotes a great deal of effort to keep close contact with perspective applicants not only during the admissions season, but also in the course of the entire academic year. Perspective applicants are invited to NES Public Seminars and other events that may enhance their interest in economics. To this end, NES maintains a newsletter distributed via e-mail to subscribers. During the academic year, more then 360 perspective applicants received regular e-mails with invitations to NES events and special events for perspective applicants, such as Open Houses, presentations, preparatory courses, and preparatory exams. In year 2003-2004, special attention was paid to the prospective applicants from Kazakhstan. With the support of the local Eurasia Foundation office 500 brochures for Kazakh residents were mailed to an address database of Kazakh economists and distributed at NES Open Houses in Almaty and during the three NES outreach workshops hosted by the Kazakh National University.

In 2003—2004, NES further expanded 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, a 60 academic hours evening preparatory course in Mathematics was organized by NES. In Almaty and Vladivostok, preparatory courses were conducted by NES local partners — The Academy of Economics and Finance, and Far-Eastern State University. With the support of the Almaty Eurasia Foundation, NES faculty member Pavel Katyshev conducted a 30 academic hours tuition-free preparatory course in mathematics in May 2004 in addition to the locally organized courses.

The NES Outreach Center contributed a great deal to the efforts of the Admissions Committee. At every workshop, information about NES was distributed to participants and individuals in the region, and information regarding the admissions process was provided to students, faculty, and departments. Outreach personnel provided assistance in organizing presentations of the NES masters’ program to students of the regional universities through the network of colleagues and participants in the workshops.

Admission Examinations

As in previous years, entrance exams in 2003 and 2004 consisted of tests in Mathematics and English, and an Economics essay. In 2003, two important modifications were introduced.

NES Annual Report 2003—2004 23 First, the format of the first half of the mathematics exam was changed so as to follow the spirit of the Subject Mathematics test of the Graduate Record Examination (GRE). Thus, this first half consisted of 40 multiple choice problems, which the students were expected to solve within 2 hours of test. The second half retained the traditional format and consisted of 6 longer problems, also to be solved during 2 hours. The whole exam was graded on 2-12 scale, with 3 being the minimal passing grade to be considered for admission. Еру mathematics exam checks the abilities of the applicants in calculus and linear algebra.

Second, the economics essay was assigned greater weight in admissions, and the scale was changed from 8-10 in the previous years to 6-10 starting 2003. No minimal passing score for the essay is required for admission. The essay does not check the knowledge of formal modeling, but rather assesses applicants’ abilities to think critically about economic issues.

The English exam kept its previous format, based on Test of English as a Foreign Language (TOEFL). The exam is graded on the scale 5-10, where 6 is the minimal passing grade.

Tuition and Financial Aid

Over the last several years, in correspondence with the strategic plan, NES has been gradually adopting a tuition-based system, with the aim that ultimately most students should be covering a major share of their education expenses. Tuition was raised from US$2,000 in 2001 to $4,000 starting in 2003. In addition, the number of students with tuition waivers has been reduced substantially.

Until recently, NES did not charge tuition from its students, and NES was traditionally regarded as giving “free” education. In late 1990s, some students who did not pass their entrance exams successfully, were given a chance to study at NES, on the condition that they pay for their education.

In order to break the paradigm that tuition is charged only from those who did not pass the exams, NES has declared itself to be a paid-for educational institution with various forms of financial aid to be given selectively to accepted students. Financial aid is given out in three major forms as: fellowships or grants distributed in the form of full or partial tuition waivers; student loans from the American Friends of NES; and as part of a work-study program.

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

120

100

80 58 35 # students with no tuition waiver 60 students with 50% tuition waivers students with full tuition waivers 40 14

47 20 30

0 2003 2004

Realizing that most of the students do not have money to pay for their education during their studies, NES helps such students by arranging a student loan through the Moscow office of the US-based non- ptofit organization American Friends of NES. All admitted students have access to these loans, which have to be repaid with interest in the ten years following graduation. In 2004, 52 students (or 72%) of the72 without full waivers chose to take these loans.

Finally, realizing that many students have limited access to money for basic needs during their studies, NES has developed a work-study program in which students work for three hours a week for NES and receive a salary of $5 per hour.

NES Annual Report 2003—2004 24 GRADUATES AND ALUMNI

Graduates 2003—2004

The following 56 students graduated from NES as the Class of 2004 and were granted degrees in the annual commencement ceremony held on 7 July 2004.

The Don Patinkin Prize for the top student in the graduating class was won by Oleg Itskhoki. Eight students were recognized for the exceptional quality of their Master’s theses. These included Oleg Bogoslavsky, Andrei Vashevnik, Oleg Itskhoki, Oleg Obrezkov, Maria Petrova, Sergey Prikhodko, Andrey Ryzhov and Alexander Semenov. Victor Archavski and Dzhangir Dzhangirov were voted the Best Teaching Assistants from among the second year students who served as teaching assistants.

Summa Cum Laude Cum Laude 1. Oleg Itskhoki 1. Oleg Bogoslavsky 2. Oleg Obrezkov 2. Dzhangir Dzhangirov 3. Andrew Vashevnik 3. Natalia Klykova 4. Andrey Mavrenkov

Diplomas 1. Anton Anshin 25. Maria Petrova 2. Victor Archavsky 26. Stanislav Ponomarenko 3. Mikhail Borisov 27. Sergey Prikhodko 4. Anna Burak 28. Andrei Prudnikov 5. Andrey Bytchkov 29. Andrey Ryzhov 6. Alexey Debelov 30. Anastasia Sarson 7. Alexander Driga 31. Alexander Semenov 8. Svetlana Egorova 32. Ekaterina Sidorova 9. Dmitry Ermolin 33. Natalia Sizova 10. Roman Golovin 34. Arseniy Skvortsov 11. Igor Gorshunov 35. Vasily Starostenko 12. Natalia Guseva 36. Anton Startsev 13. Igor Kheifets 37. Sergei Strelnikov 14. Andrey Kobelev 38. Andrey Shabalin 15. Sergey Kopylov 39. Victor Shemanaev 16. Alla Kryssanova 40. Marina Shestakova 17. Victor Kudinov 41. Ilya Shirokov 18. Tatyana Kuzmenko 42. Olga Shirokova 19. Maxim Kukoverov 43. Alexander Varakin 20. Julia Lee 44. Natalia Yeremeyeva 21. Boris Livshits 45. Olga Zagvozdkina 22. Dmitry Maniacov 46. Vasily Zaitsev 23. Alexei Moskvitchev 47. Galina Zudenkova 24. Vladislav Nigmatullin 48. Vasily Zuev

Employment and Academic Placement of Alumni

Changes in alumni’s preferences for employment in Russia and doctoral studies abroad reflect developments in Russian economic and political situation. In the first few graduating classes, the two-third of students went on to earn a PhD. This share fell during 1996—1998 and rose again after the financial crisis of August 1998. In recent years, the proportion of students going on to earn their PhD fell to historical lows, and now lies between a quarter and a third of all graduates. At the same time, more and more students choose to wait with their applications to doctoral programs until two or three years after graduation, which makes it difficult to assess the share of students going on to earn PhD among the recent graduating classes.

NES Annual Report 2003—2004 25 Figure 2: Share of Students Going on to Get a PhD

70 60 50 40 30 20 10

number of graduatesnumber 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 year of graduation

Employment in Russia Study Abroad (PhD)

NES Graduates are now employed in the following organizations in Russia:

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

Universities and Think Tanks • CEMI, Russian Academy of • Kazakhstan Institute of Sciences Management, Economics, and • Center for Economic and Strategic Research (KIMEP), Financial Research (CEFIR) Kazakhstan • Center for Fiscal Policy • Moscow Institute for Physics • Economic Expert Group and Technology • Education Network Central • New Economic School Asia • Open Economy Institute • Higher School of Economics, • State University of Humanities SU • Urban Institute • Independent Institute for Social • WIDER Policy • Institute of Financial Studies

Private Companies and Banks • Accenture • INTERROS • ACNielsen • Jones Lang LaSalle • AGRICO Investment Co. • JPMorgan • Alfa Bank • KazkommercBank, Kazakhstan • BearingPoint • KPMG • Boston Consulting Group • MAIR, Industrial Group • Branan Management& • McKinsey & Company Financial Consulting • MDT Corporation • Colliers International • MetalInvestBank • Deutsche Bank • MindShare, Media Company • Ernst & Young • NIKOIL Investment Banking • EvrazHolding Group • GazPromBank • PAC Consulting • ING Barrings • Philip Morris International

NES Annual Report 2003—2004 26 • PioGlobal Asset Management • Russian Investors • PriceWaterhouseCoopers • SobinBank • Procter&Gamble, Kazakhstan • Troika Dialog • Raiffeisen Bank • Wermuth Asset Management • RosBusiness Consulting

Study Abroad

In 2003 and 2004, placement to graduate schools was very successful, although the overall number of top graduates interested in academic career declined in comparison to previous years. In 2003, among the 30 students admitted to the PhD program in economics at Harvard University, three were graduates of NES. This number is higher than for any other school outside the US. In 2004, one graduate, Oleg Itskhoki, enrolled in the economic department of Harvard University for a PhD, having also received offers with scholarships from Princeton, Stanford, Columbia, and the University of California at Berkeley.

Among the nine graduates of the Class of 2004 who applied to PhD programs during their second year at NES, seven received offers with full scholarships. These students went to Harvard (departments of Economics and Political Sciences), New York University, and Duke University in the USA, as well as London Business School, University of Carlos III of Madrid, and the University of Pompeu Fabra in Europe. Likewise, three graduates of the Class of 2003 accepted offers from Pennsylvania State University, INCEAD, and London Business School; two graduates of the Class of 2002 accepted offers from Duke and Northwestern Universities.

Academic Placement

A number of former NES graduates have come close to completion or fully finished their PhD studies and went to academic the job market this year. Among others, Ilya Strebulaev (NES, 1999; PhD in Finance from London Business School) was hired by Stanford University Business School as an assistant professor of Finance. Andrei Bremzen (NES, 1999; PhD from MIT) and Anton Suvorov (NES, 1999; PhD from Toulouse) joined the NES faculty in the Fall of 2004.

The detailed information about placement of graduates of Class 2003 and 2004 is presented in the Appendix 9.

NES Annual Report 2003—2004 27 OUTREACH

During the academic year 2003—2004, the New Economic School continued outreach activities begun in 1998. The main goal of these activities is to disseminate NES expertise among the provincial universities in Russia and other countries of the former Soviet Union. In the past 6 years, 72 outreach workshops and summer schools were conducted for 738 academics from 158 regional universities and institutes from Russia and the CIS. The NES Outreach Center maintains a homepage on the NES website which features detailed reports on each of the outreach activities. Regular Outreach Workshops In 2003—2004, NES organized three introductory workshops in Econometrics in Omsk (March 2004), Chelyabinsk (May 2004) and Yerevan (August 2004). Advanced workshops for the most successful participants of the introductory workshops were held in Rostov-on-Don (May 2004) and Vilnius (June 2004). Workshops on Macroeconomics took place in Almaty (January 2004) and Khabarovsk (May 2004). Microeconomics workshops were conducted in Tyumen (October 2003), Dnepropetrovsk (March 2004) and Almaty (May 2004). Also, the Center organized workshops on Investment Theory in Saratov (December 2003), Applied Econometric Analysis in Almaty (March 2004), Industrial Organization II in Tomsk (November 2003) and Astrakhan (May 2004), and Industrial Organization I in Berdyansk (June 2004) for the faculty of various universities of Russia and CIS.

Each workshop is designed specifically for the particular regional universities of Russia or other countries of the CIS. A representative workshop lasts one week, and includes 40 academic hours of teaching plus homework. A workshop covers half of the material of a standard semester-long course from either graduate of undergraduate curriculum, depending on the needs of each particular audience. The 20-40 participants in each workshop are academics from regional universities and institutes, selected by the NES outreach committee through an application process. It is intended that they will be able to impart the knowledge gained from the workshops to the faculty and students in their own institutions upon their return.

Table 3: Workshops Participants Place, Workshop # of Cities Universities, Participants Come From # of Title, Date, Participants Participants Instructors Come From Tyumen, 4 Tyumen State University 16 Intermediate Tyumen State Oil and Gas University 3 Microeconomics, Tyumen State University of World Economy, 2 October 2003, Management and Law Kosenok G., Tyumen State Academy of Architecture and Building 1 Akhmedov A., Chelyabinsk State University 2 Savvateev A. Ural State University (Ekaterinburg) 1 Kurgan State Agricultural Academy 1 Total: 7 26 Tomsk 10 Tomsk State University 7 Industrial Tomsk Polytechnic University 3 Organization 2 Tomsk State Academy of Architecture and Building 3 November 2003 Tomsk State Pedagogic University 4 Kosenok G., Ural State University (Ekaterinburg) 1 Bremzen A., Novosibirsk State University 1 Savvateev A. Chelyabinsk State University 2 Kuzbass State University (Kemerovo) 2 Irkutsk State University 2 Tyumen State University 1 Tyumen State Academy of Architecture and Building 1 Kurgan State Agricultural Academy 1 Bratsk State Technic University 2 Astrakhan State University 1 Total: 14 31

NES Annual Report 2003—2004 28 Saratov 5 Saratov State University 6 Investment Saratov State Social and Economic University 18 Theory Saratov Institute of Moscow State Trade and Economic 4 December 2003 University Goriaev A., Saratov Institute of Social Education 2 Gerko A. Astrakhan State University 3 Lipetsk State Technic University 1 Novosibirsk State Academy of Architecture and 1 Building 1 Pskov Polytechnic University 36 Total: 8 Almaty 9 Kazakh Economic University 5 (Kazakhstan) Kazakh National University 10 Macroeconomics Kazakh National Technic University 3 January 2004 Atyraus Oil and Gas Institute 4 Sosunov K., Financial Police Academy (Astana) 1 Golovan S. West Kazakh Agrarian Technic University (Uralsk) 2 Pavlodar State University 2 Kazakh Agrarian University (Astana) 1 Taraz State University 3 International Kazakh Turkish University (Turkistan) 2 North Kazakh State University (Petropavlovsk) 1 Zhezkazgan State University 1 Total: 12 35 Almaty 6 Kazakh Economic University 1 (Kazakhstan) Kazakh National University 10 Applied Kazakh National Technic University 1 Econometric German University in Kazakhstan 1 Analysis: Kazakh State Academy of Architecture and Building 1 Labor Economics Almaty Economic Institute 1 March 2004 International Business Academy 1 Denisova I., West Kazakh University (Uralsk) 2 Kolenikov S., Pavlodar State University 2 Kartseva M. Karaganda State University 1 Taraz State University 4 Semipalatinsk University 1 Karaganda State Technic University 1 University “Aulie-Ata” (Taraz) 1 Total: 14 33 Dnepropetrovsk 4 Dnepropetrovsk State Institute of Finance and 27 (Ukraine) Economics Microeconomics Dnepropetrovsk National University 3 March 2004 National Metallurgical Academy of Ukraine 4 Paltseva E., Ukrainian State Chemical Technic University 1 Akhmedov A., (Dnepropetrovsk) Savvateev A. Kharkov Humanitarian University 1 Astrakhan State University 1 Academy of Management and Information Technology 1 (Berdyansk) Total: 7 38 Omsk 7 Research center of CEMI in Vologda 1 Econometrics Kemerovo State University 2 March 2004 Omsk State Technic University 1 Aivazyan S., OI RGTEU 4 Peresetsky A., Omsk State University 5 Katyshev P., Novosibirsk State Academy of economics and 1 Golovan S. management ZAO SK ASTORMED 1 Tomsk State University 1 Tyumen State University 1 Ufa Institute of the Russian State trade and economics 1 University (Ufa) Moscow State University of Railway Communication 1 (Moscow) NES Annual Report 2003—2004 29 Moscow State Institute of electronics and mathematics 1 (Moscow) Total: 12 20 Rostov on Don 6 Rostov State University 1 Econometrics of Rostov State Economic University 14 Financial Markets South Russian State Technic University 1 May 2004 Tyumen State University 1 Peresetskiy A., Lipetsk State Technic University 1 Bertran M., Astrakhan State University 2 Golovan S. Donetsk National Technic University 1 Total: 7 21 Khabarovsk 4 Far East Academy of Public Service 4 Macroeconomics Khabarovsk State Academy of Economics and Law 5 May 2004 Institute of Economic Research 9 Devyatov A., Khabarovsk State Technic University 2 Karev M. Far East State University of Railway Communication 5 Center of Strategic Planning 1 Amur State University (Blagoveschensk) 3 Vladivostok University of Economics and Service 1 Russian Custom Academy (Vladivostok) 4 Birobidzhan State Pedagogical Institute (Birobidzhan) 1 Total: 10 31 Astrakhan 6 Astrakhan State University 16 Industrial Astrakhan State Technic University 2 Organization 2 South Russian Humanitarian Institute 1 May 2004 Astrakhan State Polytechnic College 1 Kosenok G., Velikie Luki State Agricultural Academy 1 Akhmedov A., Saratov State University 1 Savvateev A. Kostroma State University 1 Moscow State Institute of Electronics and Mathematics 1 Total: 8 24 Almaty 8 Kazakh Economic University 1 (Kazakhstan) Kazakh National University 9 Microeconomics Kazakh National Technic University 4 May 2004 German University in Kazakhstan 1 Izmalkov S., Kazakh State Academy of Architecture and Building 5 Makrushin A. Almaty Economic Institute 1 West Kazakh Agrarian Technic University (Uralsk) 1 Zhetysusk State University 1 Pavlodar State University 1 International Kazakh Turkish University (Turkistan) 1 Aktyubinsk State University 1 Semipalatinsk University 2 East Kazakh State Technic University 1 University “Aulie-Ata” (Taraz) 2 Total: 14 31 Chelyabinsk 4 Ural State University (Ekaterinburg) 1 Econometrics Russian Economic Academy in Ekaterinburg 1 May 2004 Ural State Economic University 1 Aivazyan S., Orenburg State University 1 Peresetskiy A., South Ural State University (Chelyabinsk) 5 Katyshev P., Chelyabinsk State University 6 Golovan S. Ural social-economics institute of the Academy of labor 1 and social relations (Chelyabinsk) Rudny, Kazakhstan 1 Total: 8 18 Vilnius (Lithuania) 6 Kazan State Institute of Finance and Economics 2 Discrete Choice Lukoil Perm 1 June 2004 Tomsk Polytechnic University 1 Peresetskiy A., Moscow State University 1 Katyshev P., Moscow State University of Railway Communication 1 Golovan S. VDU (Kaunas) 1 Vilnius University 7 IMI (Vilnius) 3 NES Annual Report 2003—2004 30 Vilnius State Technic University 1 MII (Vilnius) 1 LMA EI (Vilnius) 1 Total: 11 20 Berdyansk 10 Donetsk State University of Management 2 (Ukraine) Kiev National University of Trade and Economic 1 Industrial Poltava State Agricultural Academy 1 Organization 1 Kiev National Economic University 2 June 2004 European University in Cherkassy 1 Kosenok G., National Aviation University (Kiev) 1 Paltseva E., Zaporozhie National Technic University 4 Akhmedov A. University of Economy and Law (Kiev) 2 National Metallurgical Academy of Ukraine 2 Zhitomir State Technological University 2 Nikolaev State Humanitarian University 1 Astrakhan State University 2 Academy of Management and Information Technology 7 (Berdyansk) Total: 13 29 Yerevan (Armenia) 4 RAU (Yerevan) 5 Econometrics IPIA (Yerevan) 3 August 2004 Yerevan State University (Yerevan) 2 Aivazyan S., DAI, Inc (Yerevan) 1 Katyshev P., IIPA (Yerevan) 1 Golovan S., University of Stellenbosch 1 Akhmedov A. "Beiz Mettls" (Stepanokert) 1 RAU (Abovyan) 1 Total: 8 15

At all workshops in 2003—2004, participants were responsible for their ravel arrangements and accommodations. For the workshops in Econometrics in Omsk, Rostov/Don, Chelyabinsk, and Vilnius, as well as the workshops in Investment Theory in Saratov and Macroeconomics in Khabarovsk, the hosting institutions charged modest enrollment fees ($50) to compensate for meals and handouts, while participants were responsible for their travel and accommodation. Other activities Besides administering regular workshops, which constitute the major part of the outreach activities, the center also encourages NES faculty to participate in re-training events organized by other institutions, and sometimes co-sponsors them. Thus, in 2003—2004 NES, in consortium with three other universities, was involved in the project “Center for Improvement of Teaching” sponsored by the National Training Foundation. Within the project, NES faculty developed course-packs for distribution among regional faculty, and taught these courses in workshops similar to regular NES outreach events.

Other workshops were sponsored fully or partially by other institutions. NES faculty taught a course on Macroeconometric Modeling at the Far-Eastern University in Vladivostok in the fall of 2003. Likewise, NES held a workshop on Trade Policy in Vladivostok in July 2004. During this last event, over twenty participants from all over Far Eastern region took courses in International Trade, and then took part in the round table on the influence of WTO accession on Russia’s Far East. In the previous year, a summer school in July 2003 held in Vladivostok was devoted to the Applied Econometrics Analyses in Financial Markets and Labor Economics. These activities were co-sponsored by the OSI Megaproject, NES and USAID.

On October 9—11, 2003, NES organized a round table with representatives of partner universities in Russia and other countries of the former Soviet Union to discuss new possible venues of cooperation that would enhance excellence in teaching of university-level economics in these countries. During the roundtable, participants described their economics programs and then outlined their thoughts for what possible developments they want to achieve at their universities and the difficulties they face on the way.

In AY 2003—2004, NES delivered two outreach courses in the frame of the executive education program. NES faculty members, A.Peresetsky, P.Katyshev, G.Kosenok, as well as teaching assistants

NES Annual Report 2003—2004 31 S.Golovan and A.Akhmedov, were invited to train over 30 experts from the Ministries of Uzbekistan in Introductory Econometrics, Time Series Econometrics and Industrial Organization. Each course lasted for one week (40 academic hours), and both teaching and travel costs were fully recovered by USAID partners in Uzbekistan.

Due to the distribution of information about NES at every workshop, more visiting scholars and students were attracted to NES. Outreach activities induced participants and their colleagues to collaborate at other conferences and are facilitating the creation of a wide network of regional university instructors.

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 will have the opportunity to advance their teaching skills in the area of macroeconomics. 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. During this first session, the foundations were laid for linking macroeconomic questions with econometric research, so as to provide an empirical basis for many of the issues frequently taught within macroeconomic curriculum. Participants also enjoyed the possibility of using the NES library and photocopying papers and chapters they needed 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 from Columbia University, and NES instructor Sergei Golovan.

The ReSET project is aimed at improving of the teaching skills of participants in the area of monetary economics. Special emphasis is made on the methods of empirical evaluation of the existing theories, in order to connect seemingly abstract textbook models with reality. Within the next years of the project, participants are expected to analyze these methods with resource faculty during summer and winter contact sessions, and then perform individual projects associated with literature review or academic research on the topics they teach in their university courses. Individual projects will have to be connected to critical assessments of competing models and their empirical relevance.

NES Annual Report 2003—2004 32 FACILITIES

Library

The New Economic School’s library has large collection of modern economics journals from different countries, recent edition books on economics, and fast and easy access electronic research databases. All economic resources are continuously kept updated. This makes the library an extremely valuable resource not only for faculty and students of NES but also for many economic researches in Russia. Originally the library was sponsored by the Soros and Eurasia Foundations. Nowadays it receives generous donations from individuals and organizations interested in supporting the School.

Young Russians students of New Economic School represent the majority of its users. The library is also open to NES faculty and alumni and CEFIR and EERC researchers. In addition the above list includes economists from other Russian educational and research institutes, professional economists in the public and private sectors in Russia and visiting scholars from abroad.

The NES library receives financial support from various grants. In AY 2003—2004 a grant from the Open Society Institute (OSI) funded the addition of about 150 new titles including textbooks for new courses in Financial Accounting, International Finance, and other fields. This grant also covered the purchase of 12 new computers for the library staff and the reading room. The reading room computers provide access to a NES library resource catalogue with detailed information about the books, journals and articles, and they allow operating with various Internet resources such as Jstor, Econlit and other databases. The terms of this grant also included new furniture for the reading room (bookcases and showcases). This allowed placing old periodicals donated by the distinguished economists on new shelves in the reading room. In AY 2003-2004 3M-book alarm system started to operate what improves the processing with library resources. A year earlier NES also received a grant from OSI to purchase more than 100 new tiles.

In AY 2003-2004 we upgraded the circulation procedure for books and journals. A new version of electronic catalogue MARC SQL tool was installed. Every book and journal issue now has a bar-code sticker that is scanned and saved into database. A readers’ database was simultaneously prepared and is almost ready for operation. In AY 2004-2005 the NES library will provide users with a new level of service and circulation of the materials. The library catalogue now has become available from any computer connected to the NES local network. Students can search for a book or journal not only in the library reading room, but also in computer classes, while faculty and staff members can check for a required library material from their offices.

Currently, the electronic library catalogue contains over 8,500 records, which include 60 different textbook titles, more than 10,000 journal issues of more than 50 journal titles.

The most important journal subscriptions include the following:

1. International Journal of Forecasting 11. Economics of Planning 2. Economic Policy 12. Journal of Business and Economics 3. Economica Statistics 4. Economics of Transition 13. The Economist 5. American Economic Review 14. Journal Industrial Economics 6. Journal of Economic Literature 15. Journal of Labor Economics 7. Journal of Economic Perspectives, Papers 16. Journal of Money Credit and Banking and Proceedings 17. Quarterly Journal of Economics 8. Econometrica 18. Rand Journal of Economics 9. Brookings Papers on Economic Activity 19. Review of Economic Studies 10. Journal of Law Economics and Organization

NES Annual Report 2003—2004 33 Thanks to continuation of the John D. and Catherine T. MacArthur Foundation grant in AY 2003-2004 NES alone with more than 20 other institutions in Russia and Belarus received access to the JSTOR Arts & Sciences I Collection for the next three years. In May 2004 NES volunteered to host a training and celebration workshop which lasted for two days and more than 30 participants participated in it. This helps to outreach and promote NES among other libraries as well as to develop close relations with other universities. NES collected a modest fee for providing premises, while the travel of participants and all logistics were covered by the JSTOR from the MacArthur Foundation’s grant. Computer Resources

Computing activity at NES centers on the networked Pentium IV PCs that are located in the computer laboratories, library and offices of NES. Currently most of the computers are Pentium-IV class machines. The entire computer environment is built around the local area network and provides easy, fast and reliable communication and sharing of data and software. There are over 100 computers, including those in two PC laboratories, library reading room, and on the network. High-quality networked laser printers are available for users. In the last two years NES was twice awarded special grants from OSI to enhance the intranet by adding new equipment, new software, and replacing outdated machines which cannot run the modern software.

During AY 2003—2004 NES implemented several projects and deployed the number of new technologies: • NES Internet access security regulations and polices: Microsoft Internet Security and Acceleration Server 2000. • NES antivirus technology improvement: antivirus protection at the desktop computers, file and print servers, mail servers, mail clients, firewall servers. • NES messaging system migration: school wide Microsoft Exchange 2000 – Outlook 2000/XP technology deployment. • NES Library system: MARC-SQL. • NES Accounting system: “1C Enterprise 7.7”. • Backup system: Veritas Backup Exec 9.0. • Print quota management system: PrintControl 2 Northern. • The NES library reading room, together with library offices, is now equipped with 12 brand new PCs (cabling network infrastructure, active network equipment, NES LAN/Intranet integration, and unique library software bundle deployment, including access to dedicated Intranet/Internet resources). • NES PC Lab: 10 PCs renovated, new HP LaserJet 4200 printer installed. • NES offices: received 10 PCs for renovation. • NES LAN extension: offices 521, 2114, 1009 are now connected to the NES LAN.

Desktop computers run the Windows XP desktop operating system, which allows users to access a number of available software packages in addition to the de-facto standard set of Microsoft Office components. Various econometrics software packages are available on the LAN together with a variety of datasets. Data is accumulated in several databases and occupies more than 50GB at the time of writing.

The Internet facilities include a comprehensive set of services including e-mail and Worldwide Web servers. NES has improved and updated its bilingval homepage with information about the school that includes teaching materials, on-line information for the outreach workshop participants and NES perspective applicants, together with various data developed by students. The website includes information in Russian and English. Abstracts of research completed by NES graduates, working papers and Best Student Papers are also now available on our web site.

We are working on improving of the environment for increased ease and frequency of communication between NES alumni abroad and NES staff, faculty and students in Moscow and across the country. This expansion will continue as computing technology becomes more sophisticated.

NES Annual Report 2003—2004 34 FINANCES

The primary source of funding for NES continues to be major foundation grants. The major funders continue to be the Soros Foundations (mainly through the Higher Education Support Program), the World Bank, the John D. and Catherine T. MacArthur Foundation, the Ford Foundation and the Eurasia 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 widen the funding base by increasing local support and securing long-term funding. In addition, NES has instituted a tuition program combined with student loans. The importance of this tuition program is constantly growing. Major Funders

Academic year 2003—2004 • Soros Foundation grants supported operating costs of the School, including governance, visiting faculty, and the loan program. In addition, Soros grants supported academic partnerships with other universities. • The Ford Foundation supported the research program, tenured track faculty, and administrative expenses at NES. • The John D. and Catherine T. MacArthur Foundation supported operating costs of the School, tenure-track faculty, and the activities of the NES Outreach Center. • The World Bank supported capacity building at NES. • The Eurasia Foundation provided support for the development of financial sustainability and controls at NES, as well as visiting faculty and Russian tenure-track faculty.

Figure 3: Distribution of NES Revenues in AY 2003-2004 by Source

Russian fundings 14%

Tuitions and fees 11%

Grants 75%

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 administering the student loan program.

NES Annual Report 2003—2004 35 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

Financial Support from Russian Business, Organizations, and Individuals

In AY 2003—2004, NES received financial support for two assistant professor positions from the Human Capital Foundation and Access Industries Inc. Dr. Sergei Guriev and Dr. Stanyslav Anatolyev were appointed Human Capital Foundation Assistant Professor of Corporate Finance and the Access Industries Assistant Professor of Economics, respectively. In addition the Open Economy Institute and TNK-BP provided NES with institutional support.

The following students were supported by Russian organizations and individuals, who covered the full cost of their studies at NES in AY 2003—2004: Klykova Natalia, Debelov Alexei, Livshits Boris, Itskhoki Oleg and Stetsenko Pavel. The support was provided generously by the Nadezhda Brezhneva Foundation, the National Reserve Bank, Mr. Alexander Abramov and Mr. Peter Aven. NES believes that these annual donations will grow into long-term sustainable cooperation and funding.

Cost Recovery and Self-financing

In AY 2003—2004 tuition fees at NES were set $4000 a year, the level envisaged by the NES strategic plan for development. Currently, the program applies to all students aside from those who score in the top-third on their entrance exams. Previously a majority of students were exempt from tuition. Increasing the share of students paying tuition has been a long-term goal of NES’ strategic plan.

All students that are required to pay tuition may obtain a student loan from the representative office of AFNES, with repayment starting 4 months after graduation. The loan carries a subsidized interest rate of 4%. The loan program enabled NES to enroll 30 new students in the academic year 2003—2004 and 52 new students in the AY 2004—2005 who would not have been able to afford tuition otherwise. The increase in the share of students paying tuition 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—2005

80

70

60

50

40

30 # of first year of students paying tuition

20 # of first year students paying tuition 10 through the loan program

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

NES Annual Report 2003—2004 36 NES also collects revenues from application and admissions fees ($30 and $150, respectively) from prospective students, as well as from preparatory courses in English and mathematics in Moscow and Novosibirsk.

Figure 5: Distribution of Fees Collected by NES in AY 2003—2004 from Individuals

preparatory courses tutions from visiting tuition fees 17% fellows 5%

tuition paid in cash 6%

registration and enrollment fees 11% tuition paid from loans 61%

NES Annual Report 2003—2004 37 GOVERNANCE

The primary governing bodies of the school are the International Advisory Board, the Russian Advisory Board, the Rectorate, and the Academic Committee. International Advisory Board (IAB)

The IAB, together with the principal Russian office holders from the Rectorate, supervise all major academic, institutional, personnel, and financial decisions.

Its current membership is as follows:

Professor Gur Ofer (Hebrew University), Coordinator Academician Valery Makarov (Director of CEMI and Rector of NES) Professor Beth Allen (University of Minnesota) Professor Erik Berglof (SITE, Stockholm School of Economics) Professor Olivier Blanchard (Massachusetts Institute of Technology) Professor Saul Estrin (London Business School) Professor Stanley Fischer (Citigroup) Professor Bronwyn Hall (University of California, Berkeley) Professor Barry W. Ickes (Pennsylvania State University) Professor Jan Magnus (Tilburg University) Academician Victor Polterovich (CEMI and NES) Professor Gerard Roland (University of California at Berkeley)

Russian Advisory Board (RAB)

Established in late February, 2001, the Russian Advisory Board of NES is one of the major resources for strategic advice. The members of the RAB, as professional economists and businessmen, highly appreciate NES’ efforts in developing economics as a profession in Russia. They also realize that NES cannot fulfill its mission alone and are ready to provide maximum support aiming the NES transition stage to develop the NES trademark and maintain the unique quality of education. The main areas of RAB and NES interactions are in the near of: • Increasing NES visibility in the Russian and Moscow economic and business community; • Widening fundraising opportunities in Russia; • NES strategic development advice; • Cooperation with NES in the retention of native professionals.

The current membership of the RAB is as follows:

Maxim Boycko, Partner, Video International Group, Chair Peter Aven, Partner, Alfa Bank Sergei Aleksashenko, Deputy Director, InterRoss Holding Company Mikhail Dmitriev, Scientific Supervisor of the Center for Strategic Research Arkady Dvorkovich, Head of the Presidential Experts’ Department Yegor Gaidar, Director, Institute for the Economy in Transition Murad Sargsyan, Director, Restoration-Construction Building Concern “LUSINE” Yakov Urinson, Deputy Chief Executive Officer, Russian Joint Stock Company “Unified Energy System of Russia” (RAO UESR) Ruben Vardanyan, President, Troika Dialog

NES Annual Report 2003—2004 38 Sergei Vasiliev, Member of the Federation Council, Chair of the Council of Federation Committee on Financial Markets and Currency Circulation Andrei Vavilov, Director, Institute for Financial Analysis Sergei Vorobiev, Managing Partner, Ward Howell International Oleg Vyugin, Head of the Federal Service for Financial Market Alexander Zakharov, Deputy Chairman of the Board, Savings Bank of the Russian Federation

Rectorate

The Rector of NES is Academician Valery Makarov, who works in cooperation with the International Advisory Board and heads up the Rectorate which manages the day to day operations of the School. In 2003—2004 the Rectorate included the following professionals:

Academician Valery Makarov, Rector Professor Alexander Fridman, Vice-Rector Oxana Budjko, Financial Director Zarema Kassabieva, Dean of Students Valentina Krupina, School Academic Secretary Yulia Kushnarenko, Chief Accountant Olga Lavrentieva, Development Officer Sergei Makarov, Head of Computer Department Olesya Marenkina, English Teaching Unit Academician Victor Polterovich, Head of the Academic Committee Karina Ter-Akopian, Head Librarian

Academic Committee

The Academic Committee is formed from IAB members, professors and lecturers, the Dean of Students, and NES principal officers. The composition of the Committee was approved by the Rector and is based on IAB recommendation. The composition for 2003—2004 was as follows:

Professor Victor Polterovich, Chair Valentina Krupina Professor Pavel Katyshev, Secretary Olga Lavrentieva Professor Sergei Aivazian Academician Valery Makarov Assistant Professor Stanislav Anatolyev Professor Gur Ofer Professor Alexander Friedman Professor Vladimir Popov Assistant Professor Alexei Goriev Assistant Professor Konstantin Sonin Assistant Professor Alexei Deviatov Assistant Professor Kirill Sosunov Zarema Kassabieva Karina Ter-Akopian Assistant Professor Grigory Kosenok Assistant Professor Oleg Zamulin

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.

NES Annual Report 2003—2004 39 The following individuals were members of the Admissions Committee during 2003—2004:

Academician Valery Makarov, Chair Assistant Professor Oleg Zamulin, Vice-Chair, Chair of the Economics Exam Subcommittee Zarema Kassabieva, Executive Officer Professor Pavel Katyshev, Chair of the Mathematics Exam Subcommittee Olga Kulagina, Secretary Olesia Marenkina, Chair of the English Exam Subcommittee Oxana Budjko Anna Khmelevskaya Assistant Professor Alexei Deviatov Professor Alexander Friedman Valentina Krupina Olga Lavrentieva Professor Victor Polterovich Professor Oleg Eismont

NES Annual Report 2003—2004 40 APPENDIXES

Appendix 1: Course Offerings for 2003—2004

Pre-Academic Year

Preliminary Intensive English Course The purpose of this 60-hour course is to prepare new students for the English-speaking environment at NES. The program focuses on listening comprehension and note taking, the development of conversational skills for social contacts, and familiarization with the terminology of economics. The program was split into three parts: 1. English for specific purposes (Economics) 2. Study Skills: English for academic purposes (listening to lectures, note-taking, improving reading comprehension) 3. General English (Communicative functions).

Module I: 1 September — 26 October 2003

First Year Courses: Microeconomics I R. Gronau, O. Moav (Main textbook: Microeconomic Theory, W. Nicholson) This course provides students with a basic grounding in consumer theory. The topics covered initially include consumer preferences and rational choice; ordinary and compensated demand functions; income and substitution effects; market demand; income and price elasticities; and consumer surplus. This is followed by a discussion of the pure exchange economy, including the competitive equilibrium, Pareto efficient allocations, and the core. The course then deals with topics concerned with consumer choice under uncertainty, covering the expected utility hypothesis and state preference theory, with applications to insurance and investment in risky assets. Finally, there is a brief introduction to issues in the economics of information such as asymmetric information, adverse selection, moral hazard, and signaling.

Macroeconomics I O. Zamulin, T. Mikhailova (Main textbook: Macroeconomics in the Global Economy, J. Sachs and F. Larrain, 1993.) 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.

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.

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;

NES Annual Report 2003—2004 41 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.

English R. Burdonskaya, et al. See section describing English language instruction earlier in this section.

Second Year Courses 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.

History of Economic Thought I R. Entov 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).

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.

Macroeconomics VI O. Zamulin 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 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.

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.

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.

NES Annual Report 2003—2004 42 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.

Investment Theory A. Goriaev This course covers foundations of modern financial economics. We start with the problems of choice under uncertainty and portfolio management. Then, we study the discrete-time models of asset pricing under the assumptions of competitive markets and symmetric information. Finally, we consider the applications of these theories to the pricing of options and performance evaluation. Although the course is primarily theoretical, we also discuss the empirical relevance and practical applicability of the main results.

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 and so on.

Module II: 27 October — 21 December 2003

First Year Courses Microeconomics II G. Kosenok, A. Tonis (Main textbook: Microeconomic Theory, W. Nicholson 7th edition) 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 V.Popov, Ch. Ruehl, P. Thomsen (Main Textbooks: Jeffrey D. Sachs and Felipe Larrain B. (1993) Macroeconomics in the Global Economy; Rudiger Dornbusch and Stanley Fischer (1990) Macroeconomics (fifth edition)) 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; and, 3. Long – term growth and business cycles. Solow growth model. New Keynesian and New Classical business cycle theories.

Mathematics for Economists II V.Bulavsky, A.Sotskov

(See description given in Period I)

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

English R. Burdonskaya, et al.

Second Year Courses 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.

NES Annual Report 2003—2004 43

History of Economic Thought II R. Entov This course is a continuation of History of Economic Thought I taught in the first module. In this module the following topics are discussed: The German Historical and Austrian Schools; marginalism; the development of partial and general equilibrium analysis (Marshall, Walras, Edgeworth, Pareto and Slutsky); American institutionalism (Coase); the Stockholm School; perfect and imperfect competition (Robinson, Chamberlain); the Keynesian revolution; monetarism; the neo-classical school.

Theory of Economic Reform V. Polterovich (Main Recommended Textbooks: Roland G. (2000). Transition and Economics. Politics, Markets and Firms. Cambridge, Mass.: MIT Press. Blanchard, O. (1997). The Economics of Post-Communist Transition. Oxford: Clarendon Press.) 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.

Auctions and Mechanism Design K. Sonin This course covers three broad themes: theory of social choice, mechanism design and auctions. The objective is to give the basics of these theories, and demonstrate how they can be applied to practical problems of markets organization. The theory of social choice is a prerequisite for understanding the problem of mechanism design. Its central point is the Arrow impossibility theorem, which also provides a basis for the Myerson-Satterthwaite theorem, which shows that, in a very general setting, it is impossible to achieve ex-post efficiency in bilateral trade. Much attention is given to discussing the particular examples of mechanisms, such as the Federal Communications Commission auctions in the USA for 3G mobile spectrum licenses held in 1995-1997. These auctions, as well as their European counterparts, provide both an illustration of successful application of the recent theoretical advancements, and a number of challenges to economists.

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

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.

Empirics of Financial Markets A.Goriaev In this course, we consider applications of econometric techniques to the analysis of financial markets, with a special emphasis to the interaction of economic theories, econometric techniques, and empirical results. First, we discuss empirical tests of market efficiency, analyzing the predictability of asset returns and the speed of stock price adjustment in response to such economic events as share repurchase or dividend announcement. 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., size and book-to-market effects) and the equity premium puzzle. Finally, we discuss how to evaluate portfolio performance, using the example of mutual funds. In particular, we analyze performance persistence, dynamic strategies, and impact of the survivorship bias. Investment Theory is a prerequisite for this course.

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

NES Annual Report 2003—2004 44 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.

Meetings of Research Groups (See description from Module I)

Module III: 12 January — 7 March 2004

First Year Courses Microeconomics III L. Polishchuk (Main textbook: Microeconomic Theory, W. Nicholson 6th edition) This course is aimed on the introduction to the theory of externalities, public goods, asymmetric information and market failures. Students are familiar to the problems of inefficiency of market outcome in the situation of the imperfect competition. The list of market failures is enlarged now with externalities (including public goods) and asymmetric information. The main focus of our analysis is resulting equilibria, loss of economic efficiency and possibilities of welfare improvements in these models.

Macroeconomics III V. Polterovich, N. Volchkova (Main textbook: Lectures on Macroeconomics O. Blanchard and S. Fisher) Topics: the Ramsey model; the overlapping generations model; money in market-clearing models.

Econometrics I A. Peresetsky (Main textbook: J. Magnus, P. Katyshev, and A. Peresetsky, Econometrics: First Course", Moscow, "Delo”, (in Russian), 1998. This course is designed to be a 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.

Games I V. Danilov, A. Savvateev 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.

English R. Burdonskaya, et al.

Second Year Courses 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.

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

NES Annual Report 2003—2004 45 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 Topics to be included in this course include oligopoly empirics, productivity and costs, differentiated product markets, price discrimination, auctions, entry and exit, contracts.

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.

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

Corporate Finance A.Goriaev The objective of this course is to discuss the most important financial decisions of a firm, covering the recent developments in the field of corporate finance. The course starts with capital budgeting techniques concentrating on the discounted cash flow method and its refinements (most notably, real options). The second part of the course is devoted to the management of corporate capital structure, in particular, the choice between bank and capital market financing and dividend policy. Finally, we consider issues related to capital restructuring and corporate governance. The course on Investment Theory and basic course on microeconomic theory are prerequisites for Corporate Finance.

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.

Banking Ch. Ruehl This course will try to combine two approaches to money and banking: the traditional, textbook based approach will be used to delineate pitfalls and desirable outcomes of an effective system of financial intermediation. And this general understanding will serve as a background to discuss the political economy of reforming the financial sector, using Russia as example.

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.

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

Module IV: 9 March — 30 April 2004

First Year Courses Microeconomics IV G. Kosenok (Main textbook: Microeconomic Theory A. Mas-Colell, M. Whinston & J. Green) 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

NES Annual Report 2003—2004 46 concepts and methods of mechanism design are introduced in problems with asymmetric 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 (Main textbook: D. Romer, Advanced Macroeconomics, McGraw Hill, 1996; O. Blanchard and S. Fischer, Lectures on Macroeconomics, MIT Press, 1989) 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.

Econometrics II P. Katyshev (Main textbook: Econometric Models and Economic Forecasts 3rd ed. R. Pindyck & D. Rubinfield) 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.

Games II V. Danilov, A. Savvateev (See description given in Period III)

English R. Burdonskaya, et al.

Second Year Courses Natural Resources O. Eismont (Main textbook: Dasgupta, P.S., and G.H. Heal. Economic Theory and Exhaustible Resources, Cambridge University Press, 1979) 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.

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.

International Trade Policy K. Yudaeva, N. Volchkova 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 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?

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

NES Annual Report 2003—2004 47 property rights and externalities; congestion; public goods, local public goods and fiscal federalism; voting mechanisms.

Law and Economics L. Polishchuk (Main textbook: R. Cooter, Th. Ulen, Law and Economics, 2nd ed., 1997) The course provides an introduction into the modern economic analysis of law. It presents key tools and methodologies of the discipline, and covers main areas of law and economics, including torts, property, and contracts, and economics of legal process. The program of the course includes analysis of economic origin of law and of legal reform in transition societies. The course contributes to better understanding of economics proper by highlighting economic ideas and concepts central for understanding of legal institutions and processes.

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.

Open Macroeconomics K. Sosunov (Main textbook: M. Obstfeld and K. Rogoff, Foundations of International Macroeconomics, MIT Press.) 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.

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.

Economic Policy in Russia Ch. Ruehl The course will be based on a forthcoming research report, i.e. a "Country Economic Memorandum for the Russian Federation" (CEM) prepared by the World Bank, and supplementary articles. The CEM is a very detailed account of structural change (encompassing population growth, employment shifts across sectors, size distribution of production facilities and firms, productivity improvements of restructuring, and ownership concentration in Russia's economy). It is not yet published but will be published at about the time the course starts and I will make a copy available when it is. The course will trace the changes that have happened in Russia's economy since 1991, often by comparing (benchmarking) Russia with other countries, and will discuss what economic policies are most suited to lead to economic growth. The basic idea is to address all those factors contributing to growth that have nothing to do with oil and gas and that are often mentioned (and summarized) and the title "structural change", but rarely investigated in detail.

Taxation and Non-Cooperative Games A. Vasin This course aims to discuss applications of game theory to the social welfare optimization problems. The first part of the course considers oligopoly models and their applications to electricity and gas markets. The second part of the course considers problems related to different components of the tax system. We discuss the basic schemes of tax evasion used in Russia. The last part of the course discusses the problem of auditing strategy optimization.

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

NES Annual Report 2003—2004 48 Module V: 10 May — 4 July 2004

First Year Courses Microeconomics V G. Kosenok, A. Bremzen (Main textbook: A.Mas-Collel, M.Whinston, Y. Green, "Microeconomic Theory", 1995) 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.

Macroeconomics V K. Sosunov (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.

English R. Burdonskaya, et al.

Second Year Courses 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.

International Finance G. Ovcharova This course has a practical orientation. It outlines basic principles essential for participation in international financial markets and for financing international operations.

Advanced Asset Pricing G. Ovcharova This course will help you read modern literature in Finance and understand certain misperceptions that are common in the literature.

Contracts A. Bremzen The course is intended to cover recent developments in economics of information and organization. The course starts with the rigorous introduction to the tools of contract theory focusing on the models with hidden action and hidden information. Then we shall study basic adverse selection and moral hazard models, mechanism design with applications to auction theory and theory of organizations. The second part covers incomplete contract theory and its applications to the theory of the firm and financial contracting.

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

English Language Instruction

NES places great emphasis on the acquisition of English language skills. The NES English Language Unit is headed by Ms. Olesya Marenkina and employs 3 tutors and one assistant. Several courses are offered

NES Annual Report 2003—2004 49 and students are encouraged to use the language laboratory facilities at NES, which are equipped to facilitate self-study and individual training.

The courses, in addition to the pre-session intensive English course described above, offered this academic year as part of the academic program included:

In-Session English Course (4 academic hours per week). At the end of the pre-session intensive course, the students were divided into two sub-groups: Intermediate and Advanced. Further studies of English focused on developing writing and oral presentation skills for academic purposes and to improve spoken English. Between 150 and 250 academic hours of English instruction were offered to each student.

• Intermediate students Fall semester: General English (2 academic hours per week) Winter and Spring Semesters: General English (2 hours per week) Writing skills (3 hours per week) Oral presentation skills (3 hours per week)

• Advanced students Writing skills and oral presentation (6 hours per week) Self study in the Language laboratory (progress graded at end of the course)

In addition to the regular in-session courses, a special course was offered for student applicants to prepare them for the NES TOEFL-like English entrance examination. This course was offered between February and June. Those applicants who scored 570 or above on the test administered at the end of this course were exempt from the English entrance exam.

NES Annual Report 2003—2004 50 Appendix 2: Research Profiles of the Tenured-Track Faculty

STANISLAV A. ANATOLYEV

Articles and notes in refereed journals: 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 and Sergey Korepanov (2003) “The term structure of Russian interest rates”, Applied Economics Letters, Vol. 10, No. 13, pp. 867−870 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 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

Problems and solutions in refereed journals: Anatolyev, Stanislav (2003) “Redundancy of lagged regressors in a conditionally heteroskedastic time series regression”, Econometric Theory, Vol. 18, No. 1, Problem 03.1.2, pp. 225–226 Anatolyev, Stanislav (2002) “Autoregression and redundant instruments”, Econometric Theory, Vol. 18, No. 6, Problem 02.6.2, p. 1461 Anatolyev, Stanislav (2002) “Durbin-Watson statistic and random individual effects”, Econometric Theory, Vol. 18, No. 5, Problem 02.5.1, pp. 1273–1274 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

Work in progress: “The trading approach to testing for predictability”, with Alexander Gerko, submitted to a journal “Trading intensity in an emerging stock market: new data and a new model”, with Dmitry Shakin, submitted to a journal “Instrumental variables estimation of heteroskedastic linear models using all lags of instruments”, with Kenneth West and Ka-fu Wong “Properties of linearity tests under correct and mistaken alternatives: simulation study with macroeconomic DGP”, with Dick van Dijk, manuscript in preparation “Nonlinear rational expectation models, asymptotic variance vs. asymptotic bias, and choice of instruments”, manuscript in preparation “Empirical likelihood, GMM, serial correlation, and asymptotic bias”, manuscript in preparation “Bootstrap inference in multiperiod prediction problems: a simulation study”, New Economic School, submitted to a journal “Approximately optimal instrument for multiperiod conditional moment restrictions”, submitted to a journal “Conditional serial correlation consistent modeling of conditional heteroskedasticity”, submitted to a journal “Econometrics” (in Russian), with Sergey Ayvazyan, Grigory Kantorovich and Ilya Voskoboynikov, project in progress

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

Presentations Nonlinear CAPM and instrument selection: Econometric Institute, Erasmus University Rotterdam, Netherlands VIII Spring Meeting of Young Economists, Leuven, Belgium Empirical likelihood and asymptotic bias: 2002 Econometric Study Group annual conference, Bristol, UK

NES Annual Report 2003—2004 51 New Economic School Catholic University of Leuven, Belgium Bootstrap in prediction problems: New Economic School Anniversary conference Markov chain bootstrap: New Economic School VII Spring Meeting of Young Economists, Paris, France Conference Participation Presenter: CIREQ and McGill University, Montreal, Canada, October 30, 2003 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

Courses taught elsewhere: 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

Public appearances: “Yoshlar” TV broadcasting (Uzbekistan), “Davr” news, March 4, March 8, 2002 “TV-Center” TV broadcasting (Moscow), “Business Moscow”, February 26, 2002

Grants and Honors Access Industries Assistant Professor of Economics, Access Industries, 2003–2004 Swedish Professorship Award, Economics Education and Research Consortium – Russia and Eurasia Foundation, 2000–2003 Travel grant, VIIIth Spring Meeting of Young Economists, Leuven, 2002 Travel grant, VIIth Spring Meeting of Young Economists, Paris, 2002

SERGEI M. GURIEV

Member, American Economic Association, European Economic Association, the Econometric Society Referee, European Economic Review, Journal of Public Economics, Journal of Development Economics, Economics of Transition, Economic Systems, Journal of European Economic Association, Journal of the Economic Behavior and Organization, Berkeley Electronic Journals for Theoretical Economics Member of the Expert Board, National Training Foundation, Moscow. Member of the Board, Association of Russian Economic Think Tanks

Papers in refereed journals "Red tape and corruption." Journal of Development Economics, 2004, 73(2), 489-504. "Barter for price discrimination." with Dmitry Kvassov. International Journal of Industrial Organization, 2004, 22(3), 329-350. "Determinants of Interregional Labor Mobility in Russia: Evidence from Panel Data." with Yuri Andrienko. Economics of Transition, 2004, 12(1), 1-27. "Incomplete Contracts with Cross-Investments." Contributions in Theoretical Economics, 2003, 3(1), Article 5. "Debt Overhang and Barter in Russia." with Igor Makarov and Mathilde Maurel. Journal of Comparative Economics, 2002, 30(4), 635-656. "On Microfoundations of Yaari's Dual Theory of Choice." Geneva Papers on Risk and Insurance Theory, 2001, 26(2), 117-137.

NES Annual Report 2003—2004 52 Papers under review Contracting on time (with Dmitry Kvassov) Should I Stay or Can I Go? -- Attaching Workers Through In-kind Payments (with Guido Friebel) Human smuggling (with Guido Friebel) Knowledge disclosure, patents, and the organization of R&D (with Sudipto Bhattacharya) Oligarchs: The past or the future of Russian capitalism? (with Andrei Rachinsky)

Research in progress Imperfect competition in financial markets and capital structure (with Dmitry Kvassov) Earnings manipulation and internal incentives (with Guido Friebel) Concentrated ownership, market for corporate control, and corporate governance (with Olga Lazareva, Andrei Rachinsky, Sergei Tsoukhlo)

Chapters in books "Microeconomic Aspects of Economic Growth in Eastern Europe and the Former Soviet Union, 1950-2000", with Barry Ickes. In Randall Filer and Gur Ofer (eds.) "Growth in Transition" Oxford University Press, forthcoming. "Microeconomics of Growth around the World", with Djavad Salehi-Isfahani. In Lyn Squire and Gary McMahon (eds.) "Explaining Growth: A Global Research Project." Palgrave. 2003. "Barter in Russian Firms", with Barry Ickes. In Paul Seabright (ed.) 'The Vanishing Ruble: Barter and Currency Substitution in Postcommunist Economies' Cambridge University Press, 2000. "Russia's Barter Economy", with Barry Ickes. In Erik Berfgloef and Pramesh Vaitilingam (eds.) 'Stuck in Transit: Rethinking Russian Economic Reform ', chapter 7, CEPR, London, 1999.

Policy work Co-organizing/chairing (with Erik Bergloef) a session on Russia's accession to WTO, World Economic Forum's Russia Meeting Co-director (with Patrick Bolton) of the Corporate Governance Taskforce in the International Policy Dialogue (led by Joseph Stiglitz) Regional (with Barry Ickes) and global (with Djavad Salehi-Isfahani) studies on microeconomics of growth for the Global Development Network

ALEXEI P. GORIAEV

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

Working Papers “The relative impact of different classification schemes on mutual fund flows” “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.

Work in Progress “Prosecutors and financial markets: A case study of the YUKOS affair” (with Konstantin Sonin) “Risk factors in the Russian stock market” “International diversification benefits for Russian investors” (with Sergei Prikhodko)

Selected Conference and Seminar Presentations The Alternative Perspectives on Finance Conference, Stockholm, Sweden, August 2004 Bilkent University, Turkey, May 2004 ERIM Symposium "Finance in Transition Economies", Erasmus University Rotterdam, the Netherlands, April 2004 Tilburg University, the Netherlands, March 2004

NES Annual Report 2003—2004 53 Center for Studies in Economics and Finance (CSEF), University of Salerno, Italy, February 2003 Conference on distribution and pricing of delegated portfolio management, Financial Institutions Center at the Wharton School, Philadelphia, USA, May 2002

GRIGORY V. KOSENOK

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

Research in Progress “The Empirical Content of Quantal Response Equilibrium”, with Phil Haile (Yale U.) and Ali Hortacsu (U. of Chicago) “Individually Rational, Balanced-Budget Bayesian Mechanisms”, with Sergei Severinov (Duke U.) “Favoritism in Repeated Collusive Schemes”, with Ariane Lambert Mogiliansky (CERAS, Paris) “An Alternative to Maximum Likelihood Based on Order Statistics”, with Stanislav Anatolyev (NES) “Collusion and Cooperation with Private Monitoring”.

KONSTANTIN I. SONIN

Awards and Grants Award for a Best Economist of the Russian Academy of Science, 2002 Earhart Fellowship for participation in the ISNIE Annual Conference, 2002

Academic Papers Why the Rich May Favor Protection of Property Rights, forthcoming in the Journal of Comparative Economics, symposium issue on Appropriate Institutions for Growth (S.Djankov, ed.) Corruption and Collusion in Procurement Tenders (with Ariane Lambert), CEFIR Working Paper, 2003 Information Revelation and Efficiency in Auctions (with Anna Mikusheva), CEPR Working Paper 3675, 2002 Provincial Protectionism, WDI Working Paper 557, 2003 The Variable Value Environment: Auctions and Actions (with Michael Schwarz), Harvard Institute for Economic Research Working Paper, 2002 Passive Creditors (with Koen Schoors), 2002

Policy-Related Publications and Presentations The New Bankruptcy Law in Russia (with Ben Branch and Natasha Goncharova), Annual Survey of Bankruptcy Law, West Group, 2003 Economics and Politics of Russian Bankruptcy (with Ekaterina Zhuravskaya), CEFIR mimeo, 2003 Presentation at the joint seminar of the Higher School of Economics and the Russian-European Center for Economic Policy "Corporate Governance in Transition Economies", April 2002 Opinion contribution to OPEC on the design of fishery auctions, January 2003 Interview to the radio Liberty/Free Europe on auction design, July 2002 During the 2002-2003 year frequently commented in the media on issues of bankruptcy.

Invited Seminars Political Economics Workshop, Harris School of Public Policy, University of Chicago, April 2003 (Provincial Protectionism) Political Economy Workshop, Kellogg School of Business, Northwestern University, March 2003 (Conflicts and Commitments) Micro Theory Workshop, Economics Department, Penn State University, State College, March 2003 (Information Revelation and Efficiency in Auctions) Microanalysis of Transition Economics Series, Harriman Institute, Columbia University, March 2003 (Provincial Protectionism) Theory Workshop, Economics Department, Columbia University, New York, March 2003 (Information Revelation and Efficiency in Auctions)

NES Annual Report 2003—2004 54

Conferences World Bank Conference on Appropriate Institutions for Growth, Washington, DC, September 2002 (Why the Rich May Favor Poor Protection of Property Rights) International Society for New Institutional Economics Annual Conference, Cambridge, MA, September 2002 (Provincial Protectionism) Summer Meeting of the Econometric Society, Evanston, IL, June 2003 (Provincial Protectionism) CEPR/WDI Transition Economics Conference, Budapest, July 2003 (Provincial Protectionism) European Economic A/ESEM 2003 (Provincial Protectionism, Corruption and Collusion in Procurement Tenders), Stockholm, August 2003 Ronald Coase Workshop, Budapest, September 2003 (guest lecture – Political Economics of Russian Federalism) International Society for the New Institutional Economics, Budapest, September 2003 (Electing a Stationary Bandit)

ALEXEI Y. DEVIATOV

Completed papers: Money Creation and Optimal Pairwise Core Allocations in a Matching Model, 2002, The Pennsylvania State University Money Creation in a Random Matching Model, 2003, The New Economic School (under review in Journal of Monetary Economics).

Presentations: Money creation in a random matching model. ZEI Summer School on Monetary Theory and Policy, University of Bonn, July 14-22, 2003. 18th Annual Congress of the European Economic Association, Stockholm, August 19-24, 2003. Money Macro and Finance Research Group 35th Annual Conference, University of Cambridge, September 10-12, 2003. Reputation and soft-budget constraints (co-authored with Barry Ickes). American Economic Association Annual Meetings, San Diego, January 3-5, 2004.

KIRILL A. SOSUNOV

Publications Analyzing Indeterminacies in Real Business Cycle Model with Money. Journal of Money, Credit and Banking, May 2000.

Work in Progress A Simple Framework for Analyzing Bulls and Bears market (with A. Pagan) Real Business Cycles Model with Changing Sentiments Nominal Rigidities, Real Rigidities and Output Persistence Response of Output to the Monetary Shock in a DGE Model with Nominal Rigidities Testing the Rational expectations Hypothesis on Russian Short-term Treasury Bills market

OLEG A. ZAMULIN

Grants and Fellowships: Prize "The Best Russian Economists" from the Science Support Foundation, 2002

Publications: “Foreign Currency Pricing” (with Irina Levina), Journal of Money, Credit, and Banking, forthcoming “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: “What Stands Behind the Real Appreciation of the Russian Ruble in 1998-2003?” (with Kirill Sosunov), 2004 “Estimating Price Rigidities in Russia’s Real Estate Markets,” (with Konstantin Styrin), 2003.

NES Annual Report 2003—2004 55 “Counter-cyclical Trade Balance and Persistent Real Exchange Rates in a Neomonetarist Model,” summer 2001. “Sticky Import Prices or Sticky Export Prices: Theoretical and Empirical Investigation,” 2001.

Selected Policy-Related Projects: "Monitoring of Administrative Barriers to Small Business Growth," CEFIR, project leader, fall 2001 - present. "A New Central Bank for a New Russia", CEFIR, project participant, spring 2002.

Selected Conference Presentations: World Bank Scaling Up Poverty Reduction Conference, Shanghai, China, May 2004 Bank of Finland – CEFIR 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: Acting Academic Director of CEFIR, since September 2003-present Deputy chair of the Admissions Committee, Chair of the Economics exam committee, New Economic School, since November 2002 Director of the Outreach Center, New Economic School, since September 2002

NES Annual Report 2003—2004 56 Appendix 3: Theses Abstracts, 2003—2004

Anton Anshin Title: Non Trigger Punishments in Cournot Duopoly. Project: Repeated Economic Interactions: Imperfect Monitoring and Regulation Supervisors: Grigory Kosenok Abstract: One of the most important problems for both economics and game theory is the problem of cooperation among firms. The master paper is devoted to such mechanisms of cooperation supply in Cournot competition model as non trigger or soft punishments. The forthcoming paper will be dealing with incomplete information model that implies that firms do not know the real output of \the competitors. Instead, they could base their opinion of whether the partners deviate from the cooperation only on such publicly observed signal as market price. It is suggested that losses from insufficiency of information would be less in case of non trigger punishments than in case of trigger ones.

Victor Arshavsky Title: Exogenous Exchange Rate Shocks and Monetary Policy Rules in a Small Open Economy with Foreign Currency Pricing Supervisors: Kirill Sosunov, Oleg Zamulin Project: Monetary Policy in Transition Abstract: It is known that the exchange rate plays a very important role in economics. Monetary authority, while conducting monetary policy, should take into consideration the fluctuations of the exchange rate. This work introduces an exogenous exchange rate shock to a small open economy with foreign currency pricing. In the model a temporary exchange rate shock leads to a temporary decrease in consumption, labor supply, and output. However, using nominal interest rate as the instrument of the monetary policy, monetary authority can perfectly alleviate the effects of the shock on the real variables: consumption, labor supply, and output. At the same time monetary authority can not influence inflation, because with this setup prices are defined by the exchange rate, which is fully exogenous.

Oleg Bogoslavsky Title: Globalization and Economic Growth in Developing and Transition Economies Project: Globalization and Economic Growth In Developing and Transition Economies Supervisors: Victor Polterovich, Vladimir Popov Abstract: A model examining the influence of migration on human capital formation analogous to the model in Stark, O., Wang, Y., 2001 ‘Inducing Human Capital Formation: Migration as a Substitute for Subsidies’ is considered. But some innovations are made, namely, the use of the combination of educational subsidies and migratory policy in order for the government to maximize its objective function is analyzed. I assume output to be dependent only on human capital with an externality through the average level of human capital in the economy. The key factor here is that such policies produce more incentives to form human capital given that the agents underinvest in human capital as they ignore the presence of the externality. The interaction between developed and less developed country (the source of migration) in decision making is also considered. The main result obtained states that in the model with homogeneous agents it is profitable for the government of less developed country to use only one policy. In case of small technological gap it is better to use subsidies while in case of large technological gap the government will prefer to set high level of migration and not to subsidize. However, if a model with heterogeneous agents is considered, the use of migration will be restricted if large differentials in the efficiency of forming human capital are present and if there is negative selection for migration, that is only more talented people migrate. Moreover, some interesting facts regarding the interaction of the countries are revealed, namely, the reciprocal substitution of educational subsidies and fewer subsidies in the developed country when migration is introduced. It is also worth noting that it may be profitable for the developed country to invest in education in the less developed country if there is a large externality and sufficient migratory flows. This situation is often observed in practice.

Mikhail Borisov Title: Money Demand and Dollarization in Russia Project: Monetary Policy in Transition Supervisors: Kirill Sosunov, Oleg Zamulin Abstract: This paper analyses dynamics of demand for money in Russia since mid-90ies, with especial attention paid to the phenomenon of the two-currency system found in Russia, in the form that is often referred to as dollarization. The term "dollarization" is used here in the sense that a foreign currency replaces in part the national one in two of its functions, namely the medium-of-exchange function, and the store-of-value function. Knowing money demand function is important for a

NES Annual Report 2003—2004 57 clear understanding of the quantitative impact of specific monetary policy measures. An error- correction model (ECM) is used to estimate separately the long-run money demand function and short-run adjustments to shocks.

Anna Burak Title: Knowledge Concentration in Russia 1986-2002 Project: Economics of knowledge Supervisors: Valery Makarov Abstract: The present state of science in Russia sharply contrasts with the world tendencies: in industrial countries an expansion of science is observed, whereas in Russia there is a contraction of science sector and deteriorating of its attribute characteristics, loss of prestige of working in science. An important peculiarity of geographical allocation of science in Russia is its high concentration. In this research the hypothesis about increase of knowledge concentration in Russia in 1986-2002 is tested. By constructing Herfindahl-Hirshman index for scientific publications for 30 Russian cities it was showed that there is a decrease in knowledge concentration in Russia during the period under consideration. Another evidence of this fact is a decrease of concentration index for such indicators as the number of doctors, the number of R&D organizations, the number of post- graduate students, etc. This research analyses the factors which can influence knowledge concentration (emigration, scientific environment, expenditures on R&D, salary in science). The hypothesis of scientific environment importance for production of knowledge is tested here. The data from natural-science database SCI and the data for Russian regions were used here. The research was conducted with the use of Stata 7.0.

Andrey Bychkov Title: An Analysis of the Structure of Russian-European Natural Gas Market Project: Efficiency of use of natural resources in Russia Supervisors: Oleg Eismont Abstract: The paper studies an influence of gas market structure on social welfare and gas prices in Russian and European markets. Models of Russian-European gas market, that ware studied allowed to analyze the influence of monopolistic power and competition on social welfare and gas prices. An experience of reorganization of European gas market during the period 1998-2003 was analyzed in the MT as well.

Alexey Debelov Title: Institution-based Monopoly as a Possible Source of Club Convergence Project: Globalization and Economic Growth In Developing and Transition Economies Supervisors: Victor Polterovich, Vladimir Popov Abstract: This work deals with the problem of club convergence, approaching it from the perspective of excess monopolization in developing countries supported by local governments. Aghion and Howitt model’s expansion was proposed with installation of institutional constraints which protect incumbents’ monopoly status with artificial entry barriers. In the paper the growth rate for a country with patent race was derived along with the result of slower growth in countries with monopolized industries. Conditions for institutional traps existence were derived and programs for escape from these traps were proposed. The obtained result of probable negative influence of state protection on economy’s growth rate corresponds to the outcomes of Parente and Prescott model.

Alexei Dmitriev Title: Puzzles on Russian Political Arena Project: Special-Interest Politics, Democratic Credibility, and Industrial Structure Supervisors: Konstantin Sonin Abstract: There are several issues of Russian and “golden-billion-countries” political history considered in the paper. A number of economic reasons would be provided in the paper to prove some statements those were contained in the mid-term paper. The purpose of the paper is to verify the hypothesis that “golden-billion-countries” are the same regarding to their electoral behavior and, at the same time, there is the other kind of situation in the Russian Federation. The open-source data were used in the paper. This is the data about electoral history of Russia and “golden-billion- countries”. It may happen that the paper will need to use the game theory approach to build the models that could be useful for the understanding of the underlying political processes. However, the formal mathematical model will be provided in the paper if, and only if, such kind of model would be necessary.

Alexander Driga Title: Modeling of Ratings of World Ratings Agencies Moody’s Project: Banking sector and ratings of Russian banks Supervisors: Anatoly Peresetskiy, Alexander Kaminsky

NES Annual Report 2003—2004 58 Abstract: This paper focuses on the Moody’s bank credit ratings. It tries to build models, using econometric analysis, which can predict next year rating of a bank in a most certain way. Bank regulation has made increasing use of external credit ratings in recent years and, in June 1999, the Basel Committee proposed a revision to the international capital accord that included a more prominent role for credit ratings. Thus the models designed could be used in a bank early warning alarm system. It also interesting to see what ratings could some Russian Banks get in case if they were rated by Moody’s.

Dzhangir Dzhangirov Title: Outsourcing vs. FDI: Advantages and Disadvantages for Recipient Country Project: Globalization and Economic Growth In Developing and Transition Economies Supervisors: Victor Polterovich, Vladimir Popov Abstract: This paper examines the efficiency of different forms of investment. The need for specialized components for diversified good production is assumed. A final-good producer decides either to produce components herself or to outsource the production. She takes into consideration the size of the cost differential, the extent of contractual incompleteness, the size of the industry, and the relative wage rate. The model shows that there could be multiple equilibria in the case of endogenous contractual incompleteness rate, according to the share of firms that outsource. The consequences of taxes or subsidies on FDI introduction are analyzed. The former policy leads to the increase in the fraction of producers that engage in the outsourcing, but total number of firms decreases. Conversely, subsidies introduction increases total number of firms, but the share of producers that outsource among them decreases. Therefore, government faces trade-off between total investments in the industry, tax collection, and positive effects of outsourcing. The model also explains how the risk level influences the equilibria. Namely, the higher are the risks, the lower would be the incentives to make complicated investments, and, therefore, the share of outsourcing would decrease. Thus, more attention should be devoted to the lowering of the risks in the case of positive externalities of outsourcing.

Svetlana Egorova Title: Sectoral and Regional Analysis of Industrial Electricity Demand in Russia Project: Some Aspects of the Performance of Russian Enterprises: electricity consumption and innovation activity Supervisors: Natalya Volchkova, Ksenia Yudaeva Abstract: Nowadays the energy sector in Russia is reformed; the reform of gas sector is being discussed as well as possible jointing WTO. All these things may influence on all industries and regions in Russia. That is why the estimation of possible outcomes of the reforms becomes an important task. The purpose of this research is to analyze the dynamic of industrial electricity consumption in Russia during five years (1998—2002) and to estimate the elasticity of industrial electricity demand in Russia in sectoral and regional aspects. The main hypothesis to be tested is whether electricity demand is price responsive and how company characteristics influence electricity demand. The estimations are based on data on electricity consumption combined with account statistics of industrial companies in four regions in Russia. For purpose of estimation generalized Cobb-Douglas and translog cost functions are employed. The main method used in this project is fixed effect panel estimation. The principal finding are that electricity demand is price responsive — the own price elasticity is about -0.5 and company characteristics matter.

Natalia Eremeeva Title: Political Component of Stock Returns Project: Special-Interest Politics, Democratic Credibility, and Industrial Structure Supervisors: Konstantin Sonin Abstract: This work analyses political risks on the Russian stock market. In particular, the impact of government bodies on prices of three majors Russian companies (YUKOS, LUKOIL, and Gazprom) during the period 2002-2003 is investigated. Comparison to bankruptcy of world stock market largest companies (Enron, WorldCom, and Parmalat) is realized. In the first part of the paper, using the event study methodology, market reaction to major events (arrests of major shareholders of YUKOS’) is determined. These events led to the fall of YUKOS stock prices and other companies, abnormal returns of YUKOS come to -3.67% after the arrest of P. Lebedev and -5.19% after the arrest of M. Khodorkovsky. In the second part of the paper, the market model is used to determine reaction of stock return and systematic risk to all positive and negative news. Also influence of YUKOS news to the other companies’ is analyzed. It is appeared that YUKOS negative news reduces level of return while positive news increases systematic risk. As for LUKOIL, negative news, in particular law enforcement agencies news, reduces level of return, where as YUKOS positive news increases systematic risk of LUKOIL. Significant influence of YUKOS positive news on β can be explained by the fact that both companies weight heavily in market index S&P/RUX. As for Gazprom, only news of the company has significant influence. Positive news influences systematic risk. Negative news for other agencies (not from law enforcement agencies) influences the stock return and systematic risk. It can be inferred that

NES Annual Report 2003—2004 59 private firms are liable to law enforcement agencies and government firms are liable to other agencies.

Dmitry Ermolin Title: Regional Analysis of Innovation Activity in Russian Firms Project: Some Aspects of the Performance of Russian Enterprises: Electricity Consumption and Innovation Activity Supervisors: Natalya Volchkova, Ksenia Yudaeva Abstract: This work is devoted to the analysis of innovation activity of firms across Russian regions. Several works (Kirchert (2001), Aghion&Schankerman (2003)) offered an explanation of divergence in regional development by different capability of absorption knowledge. The capability of absorption and creation of innovation depends on geographic conditions, institutional and physical infrastructure. Based on data on large and medium enterprises for 2000 and 2001 years this paper econometrically investigates the influence of regional peculiarities on innovation activity. This paper also investigates factors, which affect the carrying out different type of innovation. Along with description of influence of physical and institutional infrastructure of regions the paper takes into account classical factors of innovation activity such as budget constraints, foreign direct investments and human capital. The econometric analysis shows that influences of educational distribution and cumulative foreign investment in regions on innovation activities are insignificant. At the same time there are positive significant impacts of geographic factors, institutional and physical infrastructure.

Roman Golovin Title: Local Return Factors in the Russian Stock Market Project: Portfolio Management Supervisors: Alexei Goriaev Abstract: Due to the short history and low liquidity of majority of stocks, the Russian stock market has been poorly explored. The objective of this paper is to identify factors explaining cross-sectional return differences at the Russian stock market during the period from January 1999 to December 2003. Two sets of factors are considered: macroeconomic (e.g., exchange rate, country risk, and oil price) and fundamental (e.g., size, momentum, and turnover). The factor risk premiums are measured as returns on zero-investment factor-mimicking portfolios with long position in stocks with high value of the attribute and short position in stocks with low value of the attribute (company characteristic in case of fundamental factors, factor loading in case of macroeconomic factors, or multi-factor score). We find that stocks of small companies, stocks with high sensitivity to the change of dollar price, and country risk factor outperform their counterparts. The factor risk premiums can be also interpreted as returns on stock selection strategies mimicking factors. We document that some of the strategies can be successfully implemented by investors even in after accounting for transaction costs, short sales constraints, and implementation delay. The results of this paper may be used for performance evaluation and attribution of Russian investment companies

Igor Gorshunov Title: Should Intellectual Property Rights Be Protected? Project: Economics of knowledge Supervisors: Valery Makarov Abstract: Considered in the paper is the problem of intellectual property rights protection. Generally, in the current literature, arguing both for and against this protection, international considerations are used. In contrast, in this paper the problem in hand is dealt with in one-country context. It is shown in the paper that intellectual property rights protection should be consistent with antimonopoly policy. If antimonopoly policy is strong, intellectual property rights need to be protected, while in the case of weak antimonopoly policy such protection can be harmful.

Natalia Guseva Title: Value at Risk: in Search for the Most Appropriate Model. A comparison of different approaches Project: Dynamics of Russian and Other Financial Markets Supervisors: Stanislav Anatolyev Abstract: Value at Risk (VaR) is a standard measure of market risks employed by financial institutions and their regulators. This work studies parametric and nonparametric models for the conditional distribution, namely, the TARCH model with skewed Student innovations and nonparametric estimates based on kernel smoothing. Since the VaR is just a particular quintile of the conditional distribution of returns, forecasts of the conditional distribution are used to calculate the VaR. The analysis also considers the ARCH type quintile regression that estimates the VaR directly. The methods are compared on the basis of quality measure that reflects implicit superiority of estimates produced by the approach under study to simple sample quintiles. Application to

NES Annual Report 2003—2004 60 simulated and real data gives grounds for assessing the adequacy of different approaches for estimating the VaR. Real data are returns on Russian and foreign indices.

Asel Ibragimova Title: Migration of Researchers in Russia as a Way of Knowledge Concentration Project: Economics of knowledge Supervisors: Valery Makarov Abstract: There is high concentration of knowledge production at intellectual centers in modern world. Increasing knowledge spillover in economy facilitates the economic growth. Production of knowledge is tend to concentrate in a certain place, e.g. in an intellectual center. Distribution of these centers is not uniform around the world neither is it in Russia. World intellectual centers play a very significant role in development of world science. It is very interesting to investigate the case of Russia. This paper considers the migration of researchers as the way of knowledge concentration, develops a model of interregional migration of researchers in Russia, analyses relationship of researcher migration with export of technology and technological services. The source of data is Goskomstat’s yearbook “Russian Region”.

Oleg Itskhoki Title: Asymmetric Price Rigidity and the Optimal Rate of Inflation Project: Monetary Policy in Transition Economies Supervisors: Oleg Zamulin, Kirill Sosunov Abstract: This paper addresses the issue of optimal rate of inflation. Stable inflation at some optimal level is a long-term goal of the monetary policy as opposed to short-term stabilization policy. In the paper it is argued that the optimal rate of inflation is positive due to a number of reasons. Essentially, the arguments in favor of positive optimal inflation fall into three groups. Desirable level of inflation may be positive as a result of tax system optimization (i.e., seigniorage argument). However, this does not seem to be a sufficiently important reason for long-run monetary policy. The other two groups of arguments appear to be more relevant. Positive rate of inflation is desirable for the financial markets and the conduct of short-run macro-stabilization policy since this assures that nominal interest rates are positive. And, finally, trend-inflation alleviates price stickiness and contributes to business cycle stabilization. In this paper we investigate the relationship between long-run level of inflation and price stickiness. In particular we analyze the case of asymmetric price rigidity – a situation when prices are more rigid downwards than upwards. The idea of asymmetric price rigidity is not new for (New) Keynesian theories. However, formal analysis of asymmetric rigidity is far from being exhaustive. It turns out that asymmetric price rigidity may enhance the optimality of a positive inflation. In the first part of the paper we discuss briefly certain arguments on optimal rate of inflation. The second part of the paper is devoted to asymmetric price rigidity and it consequences. In the third part we present a formal model of asymmetric price rigidity, which is a slight modification of Ball and Mankiw (1994) model. The fourth part address one possible source of asymmetric rigidity – money illusion in the labor market. And the final part provides some empirical evidence on asymmetric rigidity in real data.

Igor Kheifets Title: Fish Quota Auctions in Russia: Budget Constraints and Efficiency Project: Special-Interest Politics, Democratic Credibility, and Industrial Structure Supervisors: Konstantin Sonin Abstract: Allocating fishing quota shares through auctions has been cancelled this year. However, theoretically, auction is the best way of allocating resources. In this work why Russian Government has decided to cancel auctions and why fishermen themselves were so unpleasant with auctions is discussed. One of the problems is that fishermen do not have enough money for quota before they sell fish. In developing country, with imperfect financial market a problem of “budget constraint” arises. Unfortunately, the Revenue Equivalence Theorem, which states that different types of auctions yield the same expected revenue, fails in this case. Moreover, in the case of budget constrained buyers an object may be allocated inefficiently: not to the highest- valuation buyer. An example of such inefficiency is constructed. The inefficiency of auctions with budget constrained buyers was noticed by Maskin (1992), Shleifer and Vishny (1992) and Che and Gale (1998).

Natalia Klykova Title: Monetary Policy and External Shocks in a Small Open Economy Project: Monetary Policy in Transition Economies Supervisors: Oleg Zamulin, Kirill Sosunov Abstract: One of the most popular questions in macroeconomics is how to determine optimal monetary policy. In the recent years a lot literature has been dedicated to analysis of monetary rules for a small open economy in the context of New-Keynesian Theory. However, in most cases developed countries are prototypes of a modeled economy (Canada is the most frequent example) and this

NES Annual Report 2003—2004 61 fact can not but affect the structure of models and the goals of studies. This paper promotes an approach for constructing the model for a small open economy that captures some specific characteristics of developing economies, Russia in particular: dependence on external resources prices (oil as an example) and foreign interest rates. The constructed model makes it possible to predict the dynamics of key macroeconomic variables (output, inflation, exchange rate and so on) under alternative monetary policy regimes. Three regimes are analyzed: domestic inflation targeting, CPI targeting, and an exchange rate peg. It is shown that there is a clear trade-off between stabilization of output and inflation, on the one hand, and exchange rate, on the other. A special case is discussed for which domestic inflation targeting constitutes an optimal policy.

Andrey Kobelev Title: Performance Evaluation of Russian Mutual Funds Project: Portfolio management Supervisors: Alexei Goriaev Abstract: The stock market’s boom and the pension reform have stimulated rapid growth of the financial management industry in Russia. The objective of this paper is to evaluate performance of Russian mutual funds during the post-crisis period from 1999 to 2003. The main research question of the paper is whether the active portfolio management creates the value added for fund investors, in excess of the transaction costs. Our main results are based on the mean-variance spanning methodology (see, e.g. DeRoon and Nijman, 2001), testing the hypothesis whether the addition of a mutual fund to a typical investor’s portfolio improves its risk-return trade-off. We find that returns of most mutual funds are well explained by a passive portfolio of Russian blue chips and corporate bond index. On average, mutual funds marginally outperform the benchmark portfolio.

Alexey Kononenko Title: Optimal Portfolio Selection. Analysis of Russian Financial Data Project: Portfolio Management at the Russian Financial Market Supervisors: Alexei Goriaev Abstract: Some of major features of Russian financial markets are short history, moderate capitalization and extremely low liquidity of most listed assets which have resulted into very few papers written. A feasibility study of using the analytical tools which are common for optimal portfolio selection in highly developed markets will be made. Moreover, analysis of optimal portfolio properties and robustness of the results will be implemented.

Sergei Kopylov Title: Another Model of Price Rigidity Project: Topics of the Theory of Money Supervisors: Alexei Deviatov Abstract: Much of the business cycle literature hinges on nominal rigidities of various kinds, where rigidity is often postulated rather than derived from model primitives. We propose another model of sticky prices, where stickiness arises as a result of idiosyncratic preference and income shocks on buyers’ side. In a similar model Golosov and Lucas (2003) show that prices are updated at frequencies roughly in line with those of most frequent shocks. Here we allow for asymmetric information and for costly information acquisition by the sellers. Our main result is that price rigidity may span far beyond the intervals implied by the highest frequency; in particular, changes in money can be non-neutral for long periods of time.

Alla Kryssanova Title: Impact of Different Types of Education on Graduates' Earnings Project: University System and Labor Market in Russia Supervisors: Irina Denisova, Leonid Polishchuk Abstract: Education received by individual is considered as one of the key factors of his or her competitiveness in the labor market. Returns to education depend on quantity, quality of the education, and the structure of the labor market. This, in turn, influences demand for different educations. The purpose of the work is to analyze empirically the links between Russian institutions of higher education and the country labor market. Namely, what opportunities different types of education give to graduates in the labor market in terms of earnings and occupations? The level, the specialty and the year of graduation are meant by the “type” of education. Hypotheses about impacts of different levels of education and various specialties on earnings in Russia are verified and the impact of the year of graduation is estimated as the indirect indicator of changes in the education system. The Russian Longitudinal Monitoring Survey (RLMS) is used as the basic data source for the estimation allowing for rather detailed econometric analysis. The results of the estimations show that the different education types significantly influence individuals` earnings. In particular, higher education increases the wages most significantly. Among people with higher education the highest earnings have those educated in engineering, economics and law, while for teachers and workers of humanitarian professions almost all the impact is due to the higher education received. Workers of humanitarian and

NES Annual Report 2003—2004 62 economic professions graduated after the year 1995 have relatively higher wages than those who graduated before, while for teachers and doctors the dependence is opposite.

Victor Kudinov Title: Semiparametric Models of Russian Bank Failures in 1998-2004 Project: Banking sector and ratings of Russian banks Supervisors: Anatoly Peresetskiy, Alexander Kaminsky Abstract: This term paper proposes semiparametric approach to estimation of binary response model of Russian banks defaults in 1998-2004. The main purpose of this investigation is to construct stable model of bank failures using financial values from banks balance sheets and macro- values of Russian economy. This investigation uses Smoothed Maximum Score Estimator (SMSE) proposed by J.L. Horowitz (1992). Comparison of Russian bank failures models in 1998-2000, taken from researches of Evdokimov (2003) and Kopylov (2003), proves higher efficiency of SMSE versus standard Logit approach. Results of SMSE estimations appear more reasonable and reflect economic intuition of bank processes. Investigations of models robustness trough 1998- 2004 years show that SMSE approach gives more robust models keeping within sample prediction at appropriate level.

Maxim Kukoverov Title: Electricity Market Reform in Russia Project: The efficiency of usage of natural resources in Russia Supervisors: Oleg Eismont Abstract: Electricity sector reform in Russia implies gradual deregulation of the energy prices. The issue of concern is whether new market-based pricing would be efficient. This paper proposes the methodology for estimating the deviation of the market from perfect competition. Main effort is devoted to distinguish the effects of the current transition structure, which is characterized by the simultaneous functioning of the regulated sector and the market. Theoretical game model is proposed which explains significant decrease of the price elasticity of market demand resulting from this structure. The empirical estimate of efficiency indicators in the framework of the model points out that market is quite competitive.

Tatyana Kuzmenko Title: Monetary Policy Rules in Russia Project: Monetary Policy in Transition Supervisors: Kirill Sosunov, Oleg Zamulin Abstract: One of the popular lines of study in the monetary macroeconomics is the revelation of objectives and instruments of monetary policy. A number of papers have been focusing on the empirical estimation of monetary policy rules for OECD countries. For the major central banks, the main operating instrument is a short term interest rate, and the objective is to minimize a weighted sum of output variance and inflation variance. This paper is concerned with the empirical estimation of the monetary policy, performed by Russian monetary authorities. Given the results of the empirical analysis it can be suggested that the Bank of Russia seeks to stabilize the inflation and the real exchange rate. Both short-term interest rate and monetary base can be treated as policy instruments. It was also found that monetary policy was not invariable during the last five years: there is the evidence for the presence of a structural break in the estimated policy rules.

Yulia Lee Title: Vouchers versus Public-Private System of Higher Education Project: University System and Labor Market in Russia. Supervisors: Irina Denisova, Leonid Polishchuk Abstract: Ability-tested vouchers are proposed in Russian Higher Educational market as an alternative way of funding contrast to existing system of public-private education. Voucher is believed to promote efficiency (tighter competition and quality improvement) and equity (freer access to institutions for socially vulnerable groups). In this paper we develop a model that compares the existing regime with government determined rules for free admitting of students to the regime with vouchers that are given to every individual according to his ability. Individual choice of whether to study or not, and what university to choose is dependent on his income and ability, university price and quality. In both regimes we investigate asymmetric equilibriums with two universities differing in quality. Switch to the voucher regime can lead to the shrink in quality difference between institutions: students’ mean-ability in elite university can decrease. The overall welfare impact of reform is heavily dependent on the government decision on the parameters of the voucher form.

Boris Livshits Title: Modeling Realized Volatility as a Long Memory Process Project: Dynamics in Russian and Other Financial Markets Supervisors: Stanislav Anatolyev

NES Annual Report 2003—2004 63 Abstract: Volatility of stock returns is a point of interest for many issues in finance theory. The most popular models like GARCH treat volatility as a latent variable. This work, in contrast, exploits the concept of realized volatility that provides a direct estimator as a sum of squared intraday returns. One of existing approaches to realized volatility is ARFIMA model which could capture long memory - distinguishing feature of volatility of stock return. This model is implemented for the most heavily traded Russian stocks. Estimation techniques based on frequency-domain method and approximate maximum likelihood are implemented. The emerging character of Russian market is taken into account by modeling the order of fractional integration as a time-dependent variable. This approach captures the convergence of realized volatility from non-stationary behavior to stationary.

Dmitry Maniakov Title: Worldwide Concentration of Fundamental Research. Empirical Analysis of the Key- factors and Trends Project: Economics of Knowledge Supervisors: Valery Makarov Abstract: Knowledge is found to be the major contributor to economic growth and national prosperity. As the result, the economic and technological domination is the matter of great concern of every government. This paper is an essential sequel of the course paper that is dedicated to the problem of knowledge concentration worldwide and US domination in fundamental sciences. Moreover it analyses the major factors, which predetermine this problem and test several hypotheses, such as: • Externality effect VS concentration growth; • Macroeconomic factors of a country provide necessary and sufficient conditions for the growth of concentration in science. Nobel Prize statistics awarded by countries since 1901 was collected and used to measure knowledge concentration while different macroeconomic indexes were used as the determinative factors. To test the hypotheses different econometric approaches as panel data analysis and time- series analysis were used. The work was performed using Stata 8.0 econometric program package.

Andrey Mavrenkov Title: The Comparison of Alternative Monetary Policies in an Open Economy with Credit Constraints and Natural Resource Producing Export Sector Project: Monetary Policy in Transition Supervisors: Kirill Sosunov, Oleg Zamulin Abstract: The paper investigates the effects of different types of monetary policy rules in an open transition economy with credit constraints, which faces external shocks to the terms of trade and the world interest rate. A dynamic model of a two-sector open economy with money, sticky prices, and endogenous investment is developed within the New Keynesian framework. The principal feature of the model is imperfect capital markets. Frictions in the financial markets are modeled following Bernanke, Gertler, and Gilchrist (1998). Such an approach makes the volume of borrowed funds available to the entrepreneur proportional to his net worth, which simplifies aggregation. Another feature of the model is dependence of the non-traded sector on the export good, which helps take dependence of the economy on natural resources into account. It is found that such an assumption changes behavior of the model significantly. The model is calibrated for Russia and simulated using standard linear approximation techniques; in this way, the effect of different types of monetary policy is assessed. Three monetary rules are considered: CPI targeting, exchange rate (ER) targeting and non-traded goods price targeting. It is found that these rules do not dominate each other, but targeting some aggregate of CPI and ER may dominate the third rule. It is also found that excessive control over real exchange rate may give rise to a highly volatile inflation.

Alexei Moskvichev Title: Optimal Regulation of Heat Electric Stations Project: Electricity Restructuring and Regulatory Reform in Russia Supervisor: Oleg Eismont Abstract: The purpose of this paper is to analyze the effectiveness of regulating heat electric stations operating on the same market. A theoretic model was proposed to describe the behavior of regulated heat electric stations. In particular, the model shows that if the regulator establishes a unique price for heat, heat stations could start behaving inefficiently. The assumptions that were made in the model were empirically tested using the data from MosEnergo.

Vladislav Nigmatullin Title: Business Candidates in General Elections Project: Special-Interest Politics, Democratic Credibility, and Industrial Structure Supervisor: Konstantin Sonin Abstract: In emerging democracies the political institutions (for example, political parties) are weak and do not prevent an opportunistic behavior of policymakers. As a result, a businessman could not want

NES Annual Report 2003—2004 64 to finance elections avoiding deviant behavior of his candidate. In the paper author analyzed four- step game with two businessmen and one policymaker.

Marina Novak Title: The Influence of the Shape of Demand on Collusion and Incentives to Deviate in Cournot Duopoly with Perfect Information Project: Repeated Economic Interactions: Imperfect Monitoring and Regulation Supervisors: Grigory Kosenok Abstract: The purpose of this work is to find out whether the shape of demand influences the collusion and if so, how it affects incentives to deviation. I will consider the Cournot duopoly with perfect information and introduce the constant elasticity demand function there. When firms collude, they produce the monopoly output and receive the monopoly profits. If a firm deviate, it receives excess profit at one period but than they turn to Cournot competition. It needs to compare the profits from collusion and costs and profits from deviation to determine, what are the incentives to deviate and how the shape of demand influences collusion. It is proved in the paper that the critical discount factor when firm is indifferent whether to deviate or not is increasing function of the elasticity of demand. It is shown that the limit of the discount is 0,9 when elasticity of demand approaches to infinity.

Oleg Obrezkov Title: Inflationary Consequences of the Real Exchange Rate Targeting Project: Monetary Policy in Transition Supervisors: Kirill Sosunov, Oleg Zamulin Abstract: This paper investigates the ability of the monetary authority to keep the real exchange rate devalued through a policy of accumulation of the foreign exchange reserves in the long-run equilibrium. The model is a two-sector open economy without market imperfections. We concentrate on the comparative steady state analysis. Hence, we compare the steady state with constant stock of international currency reserves and zero inflation to one in which the central bank accumulates foreign exchange reserves according to a well-defined and publicly known rule. The latter steady state is characterized by a depreciated level of the real exchange rate. Such depreciation may stimulate the export-driven long-term growth as shown in Polterovich, Popov (2002). However, there is a certain cost of this policy - inflation in the new steady state is positive. The main objective of the paper is to derive a clear long-run trade-off between the depreciated level of the real exchange rate and the long-run inflation. Simulation of the model calibrated using the parameters relevant for the Russian economy quantifies these inflationary effects and demonstrates that they are substantial for reasonable degrees of devaluation.

Maria Petrova Title: Special Interests in Local Elections Project: Special-Interest Politics, Democratic Credibility, and Industrial Structure Supervisors: Konstantin Sonin Abstract: Nomination of top-managers of large enterprises as candidates in local and regional elections is a common practice in nowadays Russia. How do employees of an enterprise vote in an election where their boss is a candidate? While sometimes a businessman enjoys loyal support of the workers, in other elections, even in a one-company town, the situation might be quite different. What are the determinants of voting patterns? A related problem here is why winning businessmen candidates provide public goods on relatively high level instead of increasing of their surplus. The purpose of the paper is to describe interaction of people, firm and independent candidate in an infinite game framework. The model shows that people may have incentives to vote for firm’s representative or independent candidate depending not only on candidates’ identities, but also on industrial structure and results of elections at a higher level. It also explains why winning businessmen candidates have incentives to provide public goods. The results of the model are illustrated by drawing upon the experience of recent elections in Russia.

Stanislav Ponomarenko Title: Welfare Costs of Inflation in Russia Project: Topics of the Theory of Money Supervisors: Alexei Deviatov Abstract: One of the key questions in monetary theory is the optimal monetary policy. Conventional answer is the Friedman rule. However there is empirical evidence (Bruno and Easterly (1996)) that deflation as well as high inflation impede economic activity. One of the main reasons why Friedman’s optimality may not hold is Tobin effect, distortionary taxation (Phelps (1987)) and heterogeneity of agents(Imrohoroglu (1992), Deviatov and Wallace (2001)). To estimate welfare costs of inflation and optimal inflation rate in the environment where Friedman rule may not be optimal I modify the models of Imrohoroglu (1992) (partial equilibrium) and Aiyagary (1994) (general equilibrium). As regards the model of Imrohoroglu, I increase the number of income states and change the model to include an additional asset (foreign currency). I also modify the

NES Annual Report 2003—2004 65 model of Aiyagari to include money via a cash-in-advance constraint, government and distortionary taxes. The calculations are preceded for Russia using the data for 2001 and 2002. The results show that following Imrohoroglu model with increased number of income states welfare costs of inflation in 2001 are 4% of GDP, but when the foreign currency is added the costs reduce to 0,8%. In modified version of Aiyagari (1994) model the wealth under moderate positive inflation may be the highest, which is in line with Bruno and Easterly (1996).

Sergey Prikhodko Title: Benefits from International Diversification for Russian Investors Project: Portfolio management Supervisors: Alexei Goriaev Abstract: The notions of mean-variance spanning and intersection are used here to consider the potential benefits of international diversification for Russian investors. Different modifications of the regression-based approach originally presented by Huberman and Kandel [1987] are considered. It is shown that investing into foreign markets may result in statistically significant improvement of portfolio’s characteristics for Russian investors. The properties of estimated statistics are proved by simulation analysis that makes the results valuable in case of data insufficiency. The analysis is extended by including transaction costs and short-sales constraints.

Andrey Prudnikov Title: Impact of Stock Market and Bank System Development on Economic Growth Project: Globalization and Economic Growth in Developing and Transition Economies” Supervisors: Victor Polterovich, Vladimir Popov Abstract: Empiric studies demonstrate influence of level of stock markets development and, independently, bank system development on the following economic growth. From a point of view of a policymaker it is essential to answer the question: which financial system, bank-based or market- based speeds economic growth more effectively. Analysis of probable microeconomic mechanisms of influence of financial system on growth leads to hypothesis that influence of banks and stock market differs at different stages of economic and institutional development. Therefore in my research I plan to construct a model of credit market in order to find at which stages of industrialization bank-based financial system is more effective and at when stock market development is crucial. This research is mainly based on the following works: Rajan, R. and Zingales, L., (2001), “Financial Systems, Industrial Structure, and Growth”, Oxford Review of Economic Policy and Bolton, P. and Freixas, X., (2000), Equity, Bonds and Bank Debt: Capital Structure and Financial Market Equilibrium Under Asymmetric Information, The Journal of Political Economy.

Andrey Ryzhov Title: Analysis of Stability of Econometric Models for Bank Ratings Project: Trend of the banking Sector in Russia and Bank Ratings Supervisors: Anatoly Peresetsky, Alexander Karminsky Abstract: The issue of how to assess creditworthiness of potential borrowers has always been of great interest for bankers. The concept of credit ratings is quite helpful in this connection. However, it is impossible for rating agencies to rate any borrowers. To solve this problem, econometric modeling of ratings might be used. In 2002 models for Russian banks’ ratings issued by Expert Journal and IC Rating Agency were created at the NES Research Center. The aim of this paper is to verify the hypothesis of stability of these models throughout the time on the basis of new data available. It is shown that the models seem not to be as stable as desired. Nevertheless, some improvement can be achieved through certain modifications of the models such as logarithmic rescaling and use of quintiles. It is also demonstrated that the differences in the models can be smoothed through the inclusion of macro variables as regressors. In addition, several forecasts of ratings are made based on some models and their qualities are compared to each other.

Anastasia Sarson Title: Who Appropriates Timber Rent in Russia? Project: Electricity Restructuring and Regulatory Reform in Russia Supervisors: Oleg Eismont Abstract: Though Russia is very rich in natural resources, the share of natural resource rental payments in budget revenues is very low, less than 4% of the consolidated budget. Timber rent is like many other natural resources in this sense. The average value of stumpage fees is very low: less than US$ 2. For comparison, in neighboring Finland the corresponding figure is US$ 25 per cubic meter, and in Estonia, a country with an economy in transition, — US$ 15 per cubic meter. In this project timber rent estimation based on auction data in Novgorod Oblast is made. It is well known that if a timber auction is well organized then price per cubic meter is equal to rent. Econometric analysis illustrates the significant dependence of an auction price on forest type, availability of roads and hauling distance, quality of timber, topography, and, what is important,

NES Annual Report 2003—2004 66 number of auctioneers. The paper demonstrates that about one dollar per cubic meter is losing due to imperfections of organizations of auctions. So, leskhozes and limited number of intermediaries between loggers and the market capture a considerable share of the timber rent. According to the estimations, there are about five intermediaries in Novgorod Oblast and about hundreds of consumers.

Alexander Semenov Title: The Innovations in the Economy with Exhaustible Resource Sector Project: Some Aspects of the Performance of Russian Enterprises: electricity consumption and innovation activity Supervisors: Natalya Volchkova, Ksenia Yudaeva Abstract: This work analyzes the innovation growth in the economy in condition of an increase of natural resource extraction in the model framework. The main stylized fact for the model is that the economical growth in Russia in 1999-2003 was not well-balanced and a sufficient part of which was due to high prices of natural exhaustible resources (oil and gas). On the other side, there was also a sufficient and stable growth in many other sectors (especially those oriented towards internal market) and in the last years many enterprises have made technical adjustments and have increased their R&D spending. The aim of the work is to develop endogenous growth models, which reflect both the growth of the resource extraction and the growth, connected with increase in technological level of the economy. These models give the framework for studying the possible development dynamics of economies like Russian and take into account the innovation stimulating policies of the state. The models are developed in the framework of endogenous growth theory on the basis of works of Aghion, Acemoglu, Zilibotti (2002) and Polterovich, Tonis (2003) and can be considered as multi-sector enlargements of the Solow model with constant saving rate. The main peculiarity of the works mentioned above is the concept of two-stage dynamics of technological progress. The first stage is imitation stage, when new technologies are directly borrowed abroad, and the second stage is innovation stage, when own R&D plays the crucial role in the economy. In mentioned models the economy is homogenous i.e. consists of firms, which work in one sector and have the identical growth patterns. In this work the economy is multi-sector. It contains the manufacturing sector, the resource extraction sector and the non- tradable services sector. The main mechanism defining the type of growth is the internal investment flow between sectors. In particular case of high resource world prices, the essential part of the total investment in the economy goes to the extraction sector. This can in certain conditions suppress R&D growth in the manufacturing sector and undermine the technological progress. This will result in the increase of dependence of the economy on exogenous resource prices. As the natural resource is supposed to be non-restorable the «concern of the future» becomes an important quality of the managers of the extraction sector. It is shown in the framework of proposed models that the greater is level of the «concern of the future», the less is the degree of dependence of the economy on exogenous resource price. The models are discrete and multi-periodic. The dynamics of the economy is studied both by analytical methods and by experimental modeling of the important particular cases, which illustrate the main effects.

Andrey Shabalin Title: The Effect of Durations on Volatility of Returns Project: Dynamics in Russian and Other Financial Markets Supervisors: Stanislav Anatolyev Abstract: Popular models of high frequency data imply that the average variance of return conditionally on duration is proportionate to this duration. In particular, this property holds in UHF-GARCH and SV-SARV models. This paper shows that this property is not satisfied for high frequency data. We analyze of the effect of duration on volatility of return. This analysis was performed a generalization of UHF-GARCH model. The effect is estimated using semi-nonparametric approach and quasi-maximum likelihood estimator. A parametric model that takes into account the nonlinear effect of duration on volatility is suggested. The model was estimated on data from both Russian and foreign markets. Some extensions of the model were considered to check the robustness of the estimates.

Victor Shemanaev Title: The Analysis of Short-run Development of Russia’s Economy Using Demand Models Project: Effectiveness of natural resources’ usage in Russia Supervisors: Oleg Eismont Abstract: The Russia’s economy has special features, which should be taken into account when performing a short-run analysis. These features include the openness of the economy to the world, the monopolization of key industries, abundant natural resources. Macroeconomic model that dates back to the work by Dornbush has been modified. The model differs from standard econometric models used in Russia in that it is essentially dynamic. Estimations have shown that abortion of interventions in currency market leads to ruble appreciation of about 40%.

NES Annual Report 2003—2004 67 Marina Shestakova Title: Elasticities of Substitution between Imported and Domestically Produced Goods for Russian Economy Project: Monetary Policy in Transition Supervisors: Kirill Sosunov, Oleg Zamulin Abstract: The purpose of this paper is to estimate elasticities of substitution between imported and domestically produced goods for Russian economy. Knowledge of elasticities is crucial for considering monetary policy rules and evaluation of general equilibrium models. Exchange rate is one of the possible intermediate targets of monetary policy. The question that emerges is whether changes in exchange rate can affect the competitiveness of domestic goods. Therefore knowledge of elasticities of substitution between imported and domestically produced goods is important. Another application of elasticities of substitution is applied partial and general equilibrium models which are universally sensitive to these elasticities. In this work six industries of the Russian economy are analyzed. The approach developed in Kapuscinski and Warr (1996) is applied. Long-run elasticities of substitution are estimated using GLS method. They vary around unity. This means that the rate of substitution between Russian and foreign goods is rather low. It may be partially explained as the result of the high aggregation (we use only six primary industries). The highest values of elasticities are obtained for food, light and timber industries. One of the possible ways to improve the model is to adjust real exchange rate by import tariffs which is the subject of ongoing research.

Ilya Shirokov Title: Natural Gas Market: Gas Trade between Russia and Eastern Europe Project: Natural Resources Supervisors: Oleg Eismont Abstract: The paper analyzes the structure of natural gas trade between Russia and Europe. The game with three types of players is studied: Russia, transiters and Western Europe. The model gains insights into actions of players under changes of exogenous parameters. In particular, the model allows to estimate benefits for Russia from appearance of new opportunities for gas transportation. The work develops model, proposed by Grais Wafik, Zeng Kangben, “Strategic interdependence in the East-West gas trade. A hierarchical Stackelberg game approach”. The final part of the paper provides survey of natural gas market liberalization in the USA.

Olga Shirokova Title: Education and Growth: the Case of Russia Project: University System and Labor Market in Russia Supervisors: Irina Denisova, Leonid Polishchuk Abstract: The discussion about the role of education in economic growth takes the central place in both economic theory and policy issues. During the last years there has been a shift from the question «Does education important for growth?» to the question «What determines positive or negative influence?» There is no doubt that education reform in Russia is needed, moreover transition from plan to market has lead to substantial changes in educational system. The main question here is whether these changes as well as the outcome of the reform help to form positive relationship between education and growth. To estimate the role of education for economic growth two qualitative measures of education are considered. The first one can be seen as a traditional – the results of international tests of student achievements in mathematics and science. The second one is the results of international science Olympiads. Cross-country analysis suggests that quality of education measured by these two proxies has positive and significant influence on growth rate. The paper analyzes the situation in education in Russia. We investigate changes, which have happened during the last years as well as cross-country comparisons. The analysis of public and private spending, their influence on quality of education by the level education, the dynamic of the number of students, including those who pay for education, changes in the fields’ structure in high education, the relationship with labor market. There are a lot of contradictions in Russian education system, and qualitative analysis is needed for the successful implementation of the education reform as well as for sustainable economic development of the country.

Ekaterina Sidorova Title: Ratings of Investment Attractiveness of Russian Regions. Models Project: Trend of the Banking Sector in Russia and Bank Ratings III Supervisors: Anatoly Peresetsky, Аlexander Karminsky Abstract: The economy of Russia represents high interest for investors, both internal, and external. However attractiveness of enterprises is not similar for every constituent of Russian Federation. This is mostly connected with significant differentiation of parameters of their economic activities. The most indicative and generalizing way of investment attractiveness estimation is the method of construction ratings of regions. Within the bounds of the work on the basis of available ratings of Russian regions, the models revealing the basic interrelations of fundamental economic parameters of constituents of Russian Federation, investment ratings and ratings of creditability, assigned to regions by known rating

NES Annual Report 2003—2004 68 agencies, such as “RА Expert” and АК&М are constructed. The empirical research including gathering of the corresponding data from official sources of Goskomstat of Russia, the Ministry of Finance of Russian Federation, etc., their processing with use econometric package Eviews, and modeling of ratings of Russian regions is built on the basis of Ordered Probit approach. Economic viability of the constructed models is tested with the help of prediction of available ratings of attractiveness of constituents of Russian Federation.

Natalia Sizova Title: Optimal Trigger Strategies with Differentiated Products Project: Repeated Economic Interactions: Imperfect Monitoring and Regulation Supervisors: Grigory Kosenok Abstract: In the models of collusion special attention is focused on the possibility to reduce output. In the case of perfect monitoring, punishment strategies can compel firms to hold to a predetermined production level throughout the game. If firms do not observe the actions of competitors directly, but observe the market price subjected to random shocks, then “trigger” punishment strategies based on prices may give incentives for each firm to collect extra expected profit. Previous contributions focused on models of firms producing identical goods. In this paper specific attention is given to the case of differentiated products. Each firm manufactures one brand of the product, given that the costs of brand change are infinite. The concept of the critical function (boundary) of prices is introduced. This function splits the space of prices into two parts, where one of them corresponds to the punishment action. Firms begin to penalize each other once prices drop into this region. Determination of an optimal critical boundary is the main goal of the work. It is proved, that in the case of normal shocks the firms condition their behavior to the average price of the brands and switch to punishment when it is below a critical level. The result is generalized to a wider class of shocks. The model used for the analysis was first considered by Tedeschi (1994) and is based on the Green and Porter (1984) punishment strategy. Our solution allows to study the impact of differentiation on the parameters of the model, e.g. duration and probability of price wars, firms’ profits in the punishment and cooperative states.

Arseniy Skvortsov Title: Evaluation of Society Losses from the Inflation and Taxes Project: Effects of government policy in equilibrium macroeconomic models. Supervisors: Alexander Sotskov Abstract: This project investigates efficiency of fiscal and monetary policy. The evaluation of the efficiency is the marginal society losses from inflation and taxes per one additional ruble to the budget income. To measure this evaluation an equilibrium macroeconomic model with infinite horizon is constructed, which consists of the representative consumer, the firm and the government. Steady states with rational expectations are considered and the influence of policy on basic model variables is estimated. It is shown that under quite usual constrains on the production and utility functions marginal losses from the inflation, income and value-added taxes are positive. At the same time the tax on profit is not distorting and marginal losses from the tax is zero. The model is calibrated using CRRA utility function with the parameters relevant to the Russian economy. Basing on the evaluation of marginal society losses from inflation and taxes per one additional ruble to the budget income conclusion about optimal policy is made that society losses can be reduced when the rate of inflation is replaced by the physical taxes.

Vasily Starostenko Title: Informed Voting: How Does the Structure of Industry Affect the Outcome of the Elections? Project: Special-Interest Politics, Democratic Credibility, and Industrial Structure Supervisors: Konstantin Sonin Abstract: At present, many countries in the world are democracies, so most important economic decisions are often made in voting booths. Therefore the investigation of voting systems and the impact of different factors on outcomes is an important issue today. The standard theory of voting systems assumes that voters make their decisions basing only on their preferences over candidates, and these decisions are made at once and forever. However, such an approach hardly allows to explain why elections differ so much in strategies of candidates and amounts of money they spend on their campaigns. In this paper, we assume that a voting campaign lasts in time. This assumption makes our model different from existing models of elections. We assume that the preferences of agents are functions of time and actions of candidates. This assumption helps to explain informational cascades that may emerge in an election. We also investigate the effect of information asymmetry and the voter's decision making mechanism on the voting outcome.

Anton Startsev Title: Modeling Knowledge Concentration Project: Economics of Knowledge Supervisors: Valery Makarov Abstract: There is vast literature supporting the fact of high degree of knowledge concentration in modern science. Theoretical model developed in this paper shows that the scientists’ distribution by

NES Annual Report 2003—2004 69 research centers follows “gravitational” rule, i.e. that being closer to colleagues is crucial for a scientist when choosing a place for her or his research activity. This result supports the argument of concentration tendency in scientific global community. The results of the model are favored by empirical evidence on authors concentration in top economic journals found in the papers of Hodgson, Rothman (1999) and Kocher, Sutter (2001).

Sergei Strel’nikov Title: Optimal Taxation of Homogeneous Firms in the General Equilibrium Framework under Tax Evasion Project: Models of Competition via Supply Functions with Application to the Network Auctions (Network Auctions) Supervisors: Alexander Vasin Abstract: The revenue from taxation of small business is an essential part of the total tax revenue in developed countries. This result is mostly due to the fact that a large share of total labor resources is occupied in the sector. This paper deals with taxation of firms in one-good economy in the general equilibrium framework. It examines the social welfare optimization problem under a given net tax revenue. The number of employees hired by each firm is observable by the government. It is assumed that firms avoid profit tax and payroll taxes, paying official wages below the real wage level. The model concludes that the total net tax revenue in the sector mostly depends on the level of minimal legal wage imposed by the government. The purpose of the paper is to determine the optimal tax rates and the mechanism that enforces firms to pay more wages legally. The available data analysis is given to support the main point of the paper.

Alexander Varakin Title: Dynamic Model for Return and Trading Volume with Latent Information Variable: Application to Russian and American Stock Markets Project: Dynamics in Russian and Other Financial Markets Supervisors: Stanislav Anatolyev Abstract: In the bivariate mixture model for returns and trading volume of stocks one assumes that return and trading volume have some distribution conditional on a latent information variable, which characterizes the number of information arrivals. The time series behavior of the information variable defines the dynamic behavior of returns and trading volume. In this paper we suggest to consider the specification of a bivariate dynamic model for returns and trading volume for two stocks, where returns and trading volume of each stock are directed by its own information variable. This model and the bivariate mixture model for one stock are estimated using the GMM with consistent moment selection algorithm and the data on common stocks from the MICEX and the NYSE. The results indicate that shocks to information variables for different stocks are higher correlated for the MICEX than for the NYSE.

Andrey Vashevnik Title: Raw-exporting Countries and Economic Growth Project: Globalization and Economic Growth in Developing and Transition Economies Supervisors: Victor Polterovich, Vladimir Popov Abstract: The main goal of this work is to propose a model that can explain growth rates of raw-exporting and industrial countries. In the basic model these growth rate are equal. Technological growth is matched by the growth of relative primary commodity prices. But in the real world raw material prices are not growing. Famous Prebisch-Singer hypothesis states that primary commodity prices had a downward trend over the period 1870-1945. This behavior can be explained via introducing raw material substitutes (solar batteries, for example) into the model. In this case under certain conditions raw-exporting countries grow slower than industrial countries. And relative primary commodity prices could have a downward trend. A model with several raw-exporting and industrial countries will be considered.

Olga Yasko Title Modeling of Russian Banks Ratings. Comparative Analysis of the IC “Rating” and the “Expert RA” Agencies Ratings Project: Trend of the Banking Sector in Russia and Bank Ratings III Supervisors: Anatoly Peresetsky, Alexander Karminsky Abstract: During the last few years the high emphasis has been placed on the ratings of bank’s reliability. A set of papers came out devoted to both methodology of the ratings assignment and to the analysis of ratings of Russian rating agencies, in particular, to the analysis of the IC “Rating” and “Expert RA” rating agencies. The paper is devoted to the comparative analysis of ratings of the agencies mentioned above. D.Morgan’s paper was a starting point for the research. The idea he used in his research is as follows. If a banks risk is harder to estimate, the raters in the business of judging risk should disagree more often over bank bond issues, which they do. The analysis has shown that similar results are obtained for the Russian banks. The hypothesis according to which the more risky assets of bank’s activity increase the absolute difference between ratings of agencies proves

NES Annual Report 2003—2004 70 to be true. Besides, if for the previous analysis the absolute difference between ratings has been used as a dependent variable it is interesting to conduct a research using the mere difference between ratings as a dependent variable. Such kind of research has been made and it may be concluded that the parameters by which this or that agency is guided when assigning ratings are different. The hypothesis according to which the capitalization affects the difference between ratings of agencies also proves to be true.

Olga Zagvozdkina Title: Study of Order Flows on MICEX Project: Dynamics in Russian and Other Financial Markets Supervisors: Stanislav Anatolyev Abstract: The focus of the research is the order flows in the foreign exchange market on MICEx using daily data from November 2000 to January 2003. The work mainly concerns the identification of the components of the flows with respect to trader types. There are four types of traders distinguished with regard to the information they possess and the order types they use: uninformed market order traders, informed market order traders, uninformed limit order traders, informed limit order traders. The behavior of traders of each type and corresponding order flows are described using the model that reflects evolution of the limit-order book. On the base of this model the attempt is made to establish ratios among the trader types.

Vasily Zaitsev Title: Corruption in Entry Procedures Project: Repeated Economic Interactions Supervisors: Grigory Kosenok Abstract: Corruption is one of the most vivid problems of economies in the transition. The forthcoming paper will deal with the models of corruption in entry procedures with a track of bureaucrats. In addition to the course paper the following factors, which can possibly influence the bribe level and the percentage of firms that get licenses, will be introduced. They are: intermediaries, competition among bureaucrats and the rotation of bureaucrats. We suspect that harder competition and introduction of intermediaries will lower the equilibrium bribe level. Also we are eager to obtain the result that bureaucrats with higher bargaining powers should be put near the end of the registration procedure to make the bribe burden lower. We will use game theory approach along with different bargaining procedures and different approaches to competition. Also optimization methods could be used. The work will end with the comparison of the model’s main insights with the empirical evidence.

Galina Zudenkova Title: Equal Access to Higher Education and Economic Efficiency: is there a Trade-off? Project: University System and Labor Market in Russia Supervisors: Irina Denisova, Leonid Polishchuk Abstract: This paper investigates whether equal access to higher education is consistent with economic efficiency, which is a result of social welfare maximization by a utilitarian government. The equal access is defined as irrelevance of parental income for university attendance. In the model households differ in their income and in their children’s ability. Households have access to perfect capital markets. It is shown that the market equilibrium exhibits an income bias in the sense that individuals from high income households are more likely to attend university. The main contribution of the paper is determining the optimal policy of a utilitarian government in the cases of complete informational asymmetry and partial informational asymmetry when ability is observed by the government, but income is private information of households. The regime of full informational asymmetry when both income and ability are unobserved turns into the case of free market. It is proved that under the regime of unobserved income the government does not ensure equal access to higher education as well: optimal tuition fee schedule makes a cut-off level of ability be decreasing in the household’s income. The main result is that under these informational regimes equal access to higher education is not consistent with economic efficiency

Vasily Zuev Title: The Impact of Competition on Innovation Project: Innovations in Russia Supervisors: Natalya Volchkova, Ksenia Yudaeva Abstract: One of the most important aims of economic policy is to stimulate innovation activity of Russian firms in order to increase the level of technological development of the country. There are a lot of studies concerning innovation activity in Russia, but there are no econometric investigation of the relationship between competition and innovation in Russia. The purpose of this paper is to analyze empirically the links between competition and innovation. The research was done using innovation activity data on the Russian enterprises in 2000-2001. Different indexes of competition in Russian industries are calculated. The research shows that significant U-shape relationship

NES Annual Report 2003—2004 71 between competition and innovation, predicted in economic literature, is difficult to obtain given the available data.

NES Annual Report 2003—2004 72 Appendix 4: Summary of Research Projects, 2003-2004

1. Dynamics in Russian and Other Financial Markets Leader: Stanislav Anatolyev (NES) Consultant: Dick van Dijk (Econometric Institute, Erasmus University Rotterdam, Netherlands) Assistant: Alexander Gerko

The project is devoted to the study of various stock trading process characteristics (volumes, returns and volatilities) on Russian stock exchange.

Based on the classification of traders with regard to the level of information available to them, a model of MICEX order stream is built. Monte-Carlo simulations of trade process allow one to estimate the parameters governing the shares of volumes coming from “informed” and “uninformed” traders.

A model of joint dynamics of volumes and returns for two stocks is constructed, via specifying the latent information processes for both stocks. Correlations between the information streams appear to be higher in case of Russian stock, compared to the NYSE stocks.

It is shown that the classical assumption of the volatility of return between two consecutive ticks being proportional to the period of time between ticks is invalid. An extension of UHF-GARCH model, capturing the properties of the true dependence is constructed.

The realized volatility is modeled as a long memory fractionally integrated process with time-varying degree of integratedness. Some evidence for the convergence of realized volatility of Russian stock towards stationarity is given.

Different approaches to the Value at Risk calculations for Russian and foreign stock indices are studied, in particular, TGARCH with skewed Student innovations, nonparametric kernel estimators and ARCH-type quintile regression. The comparison of the approaches is based on a quintile forecast quality measure, which reflects the relative performance of a given model compared to the sample quintile.

2. Portfolio Management Leader: Alexei Goriaev (NES) Consultant: Theo E. Nijman (Tilburg University, the Netherlands) Assistant: Denis Sokolov (CEFIR)

The goal of this project was to analyze the available investment opportunities for Russian investors, with a particular focus on the pricing of risk and performance evaluation. The research was carried out in four directions: construction of an optimal portfolio of Russian financial assets, analysis of risk factors explaining the cross-sectional differences in returns, performance evaluation of Russian mutual funds, and benefits from international diversification. The analysis was mainly based on the data set of 47 most liquid Russian stocks during the five-year post-crisis period from 1999 to 2003.

The main results of the project can be summarized as follows. • We analyzed the applicability of the different optimal portfolio selection strategies at the Russian financial market. The portfolio selection models differed with respect to the measurement of the expected return and variance, ranging from the naïve extrapolation models to the more advanced ARMA-GARCH forecasting models. We found that some of the strategies under consideration can outperform on the risk-adjusted basis the market index. • We studied two groups of local factors that could explain cross-sectional return differences at the Russian stock market: macroeconomic (such as exchange rate, country default spread, and oil price) and fundamental (such as size, momentum, and turnover). The factor risk premiums were measured as returns on zero-investment factor-mimicking portfolios with long position in stocks with high value of the attribute and short position in stocks with low value of the attribute. We found that size, dollar, and country risk factors were associated with significant return premiums, which remain even after accounting for transaction costs, short sales constraints, and implementation delay. • We evaluated performance of Russian mutual funds, using the mean-variance spanning methodology. In other words, we tested whether the addition of a mutual fund to a typical

NES Annual Report 2003—2004 73 investor’s portfolio improves its risk-return trade-off. We found that returns of most mutual funds are well explained by a passive portfolio of Russian blue chips and corporate bond index. On average, mutual funds marginally outperformed the benchmark portfolio. • We analyzed the potential benefits from international diversification for Russian investors, using the regression-based approach to the mean-variance spanning methodology. We found that investing into foreign markets resulted in statistically significant improvement of the mean- variance characteristics of the portfolio consisting of domestic assets (most liquid Russian stocks and Eurobonds). This finding is robust to including short-sale constraints. These results are especially relevant for Russian pension funds that are currently subject to severe foreign investment constraints.

3. University System and Labor Market in Russia Leaders: Irina Denisova (CEFIR), Leonid Polishchuk (Maryland University at College Park) Assistants: Akhmed Akhmedov (CEFIR), Marina Kartseva (CEFIR)

The prime objective of the research is to investigate the links between Russian institutions for post- secondary education and the country’s labor market. We investigate how universities change their performance as well as academic performance and standards. In the project we address the above problem both theoretically and empirically.

First, we examine the role of education in economic growth in Russia. We investigate changes, which have happened during the last years as well as cross-country comparisons. We analyze the public and private spending, their influence on quality of education by the level education, the dynamic of the number of students, including those who pay for education, changes in the fields’ structure in high education, the relationship with labor market.

Second, we develop and analyze a model describing an alternative way of funding contrast to existing system of public-private education: ability-tested vouches. The paper compares the existing regime with government determined rules for free admitting of students to the regime with vouchers that are given to every individual according to his ability. Individual choice of whether to study or not, and what university to choose is dependent on his income and ability, university price and quality. In both regimes we investigate asymmetric equilibriums with two universities differing in quality. Switch to the voucher regime leads to the deeper segregation between institutions: the greater the size of voucher the greater the tuition- fee difference. The overall welfare impact of reform is heavily dependent on the government decision on the parameters of the voucher form.

The third paper theoretically investigates whether equal access to higher education is consistent with economic efficiency, which is a result of social welfare maximization by a utilitarian government. It is shown that the market equilibrium exhibits an income bias in the sense that individuals from high income households are more likely to attend university. The regime of full informational asymmetry when both income and ability are unobserved turns into the case of free market. It is proved that under the regime of unobserved income the government does not ensure equal access to higher education as well: optimal tuition fee schedule makes a cut-off level of ability be decreasing in the household’s income. The main result is that under these informational regimes equal access to higher education is not consistent with economic efficiency.

Last, we provide an empirical study of returns to education: returns to special vs. general education, field choice and labor market outcomes (wage and employment stability).The results of the estimations show that the different education types significantly influence individuals` earnings. In particular, higher education increases the wages most significantly. Among people with higher education the highest earnings have those educated in engineering, economics and law, while for teachers and workers of humanitarian professions almost all the impact is due to the higher education received. Workers of humanitarian and economic professions graduated after the year 1995 have relatively higher wages than those who graduated before, while for teachers and doctors the dependence is opposite.

4. Topics of the Theory of Money Leader: Alexei Deviatov (NES) Effects of government policies in equilibrium macroeconomic models Leader: Alexander Sotskov (CEMI RAS)

NES Annual Report 2003—2004 74 The goal of the project was to address a range of current issues in monetary economics. I supervised two students; one was working on estimation of the welfare costs of inflation in Russia, the other one was working on a theoretical model of nominal price rigidity.

As regards welfare cost of inflation, we looked at implications of both partial equilibrium and general equilibrium models. We employed modifications of baseline models of Imrohoroglu (1992) (partial equilibrium) and Aiyagari (1994) (general equilibrium). In Imrohoroglu’s model we increased the number of idiosyncratic income states and added an extra asset (foreign currency) as an alternative savings instrument. In Aiyagari’s model we introduced money via cash-in-advance constraint and added distortionary taxation. The models were calibrated to the Russian economy using 2001 and 2002 data.

Using versions of Imrohoroglu’s model we found significant costs of 2001 inflation of 18.8% per annum; the costs ranged from 4% to 0.8% of GDP depending on particulars of the model. In Aiyagari’s model we found a significant Tobin effect and an optimal inflation of about 5% per year (calibration was based on 2002 data). We think that the latter model (because of its richness) provides a more adequate representation of an aggregate economy, so we suggest that estimates of the welfare costs (indeed, benefits) of inflation obtained from that model are more plausible.

As regards price rigidity, we looked at a model of sticky prices, where stickiness arises as a result of idiosyncratic preference and income shocks on buyers’ part. The main goal was to take the ideas of Lucas’ (1973) imperfect information model of non-neutrality of money to an environment where even perfect information about aggregate money supply is by much irrelevant because of shocks in local markets. We looked at both menu costs and costly information versions of the model. In both cases we found that there may be considerable price rigidity depending on parameters including the menu costs and risk aversion of sellers.

5. Trend of the Banking Sector in Russia and Bank Ratings III Leaders: Anatoly Peresetsky (NES), Alexander Karminsky (MGTU, Gazprombank); Consultant: Bertrand Melenberg (Tilburg University, Netherlands) Assistant: Sergey Golovan (NES)

Main results of the 2003/2004 are • Stability of the econometric models of the Russian bank ratings of Russian rating agencies was investigated. It was shown that the previously designed models do not show a stable behavior and need be re-estimated quarterly. (That feature of econometric models is well known, i.e. SEER model, Federal Reserve, is re-estimated quarterly). It was shown that special non-linear transformation of the bank factors makes models stable. • The semi-parametric models of the Probability of Default for Russian banks were estimated. The forecasting power happens to be lower than that by models using usual logit approach. But there are more significant variables and different values of coefficients. Since logit model is a special case of the semiparametric model it means that most likely logit model is misspecified and the semiparemetric model is the appropriate approach to the problem. • The comparative study of bank ratings of the two Russian rating agencies: “IC Rating” and “RA Expert” was conducted revealing the differences in approach of the two agencies to the estimating the banks reliability. • The investment ratings of the Russian regions were modeled. • The attempt to extend the international bank rating (Moody’s, S&P) for the Russian banks was made. The problem is that only few Russian banks are rated by these agencies. Using the international data we construct a model of the ratings which can be used for the extension of the ratings of these agencies to all Russian banks. It was shown that the most appropriate model here is the censored ordered probit model, and a program for estimating such kind of the model was designed. The problem in this part of research is with the bank data, because the international accounting data are still available only for small number of the Russian banks. The situation with international accounting data of Russian banks is going to be better in a year. Hopefully we can find enlarged data set for foreign banks as well.

The preprints are under the preparation.

NES Annual Report 2003—2004 75 6. Repeated Economic Interactions: Imperfect Monitoring and Regulation Leaders: Grigory Kosenok (NES) Consultant: Ariane Lambert-Mogiliansky (CERAS-ENPC, Paris) Assistant: Andrey Shumilov (CEFIR), Marina Kartseva (CEFIR)

The project consists of two major exercises: 1. analyzing repeated oligopolistic competition where firms are able to produce the monopoly outcome by trigger strategies, developing efficient cooperation schemes in the case of Imperfect Monitoring, and 2. examination of corruption in repeated collusive schemes.

We study non-trigger punishments in infinitely-repeated Cournot duopoly in both perfect and imperfect information cases. It is shown that in case of perfect information non trigger punishments could help to support cooperation as well as trigger ones. In the case of imperfect information two types of punishments are examined, namely one- and two-stage trigger punishments. The punishments are compared by their effectiveness-expected profit collected by firms. In the framework of analyzing repeated oligopolistic competition under imperfect monitoring we also study optimal trigger strategies with differentiated products. The paper considers Cournot duopoly in a differentiated product market, when punishment strategies can depend on prices of both products. We specify the critical area of prices which describes the lower boundary for switching to punishment state, and yields the highest profit for a cartel.

In the context of examination of corruption in repeated collusive schemes we consider corruption in entry procedures. We investigate the models of corruption in the process of getting a license for starting a firm. It is shown that inefficiency grows with the growth of bargaining powers of bureaucrats, and in the case of take-it-or-leave-it offer from bureaucrat one can hardly find any “good” one-stage game equilibrium.

7. New Economics and Internet: Russian Experience. Leader: Valery Makarov (NES, CEMI RAS) Assistant: Eugeny Yakovlev (CEFIR)

Research project was dedicated to analysis of changes in knowledge concentration in the world and in Russia.

There were four lines of investigation: 1) Empirical research of changes in knowledge concentration in the world. Nobel laureates were taken as the proxy of volume of country’s knowledge. It was shown growth in concentration of knowledge after World War II. Share of USA’s Nobel laureates increased during the last 50 years whereas share of laureates from other countries decreased. It was revealed that network externalities are important to growth of concentration. 2) Empirical research of changes in knowledge concentration in Russian regions. Number of doctors and the number of R&D organizations were taken as the proxy of regional knowledge volume. It was shown decreases in concentration of knowledge during 1992-2000. The main causes of changes in concentration were emigration process and changes in regional wages. 3) Modeling of process of knowledge concentration. In this project gravitational hypothesis of knowledge concentration was tested by using Monte Carlo modeling changes in concentration of knowledge. The model supported gravitational hypothesis. 4) Modeling of process of development and sale of an intellectual product under conditions of intellectual property rights protection and without it.

It was shown that piracy is an inferior substitute for the antimonopoly policy; therefore under conditions of strong antimonopoly policy piracy is harmful. However, when the antimonopoly policy is weak piracy can be helpful.

8. Globalization and Economic Growth in Developing and Transition Economies Leaders: Victor Polterovich (NES, CEMI), Vladimir Popov (NES, Carleton University, Canada) Assistant: Alexander Tonis (NES)

The paper summarizes theoretical arguments and provides empirical evidence to support the statement that rational economic policies depend qualitatively on two factors (misfortunes) – technological and institutional level of development of a country. We concentrate on the impact of three policies (mistakes) to promote the catch up development - import tariffs (protectionism), increase of government revenues/spending, and the speed of foreign exchange reserves accumulation (exchange rate

NES Annual Report 2003—2004 76 protectionism). It is demonstrated that the impact of these policies may be positive or negative; in each case we find a threshold level of GDP per capita and/or a threshold institutional quality indicator.

It is shown as well that import tariff policy, reserve accumulation policy, and the increase in the fiscal size of the government are substitutable, so that a GDP per capita threshold and institutional threshold for one of these indicators depend on another one. These results, the experience of successful countries, and theoretical arguments imply that different economic policy is required at different stages of economic development. Developing countries should not embark blindly on market friendly policies/reforms, even if the latter proved to be beneficial in more advanced economies. Two major misfortunes of developing countries - low technological level and low quality of institutions - should not be aggravated by three mistakes – wrong rates of increase of the financial size of the state, inappropriate degree of tariff protection, and inadequate rate of reserve accumulation (exchange rate protectionism).

9. Special-Interest Politics, Democratic Credibility, and Industrial Structure Leader: Konstantin Sonin (NES, CEFIR); Consultant: Scott Gehlbach (University of Wisconsin, Madison) Assistants: Alexey Makrushin (CEFIR) Georgy Egorov (CEFIR)

There exists substantial anecdotal evidence that interest groups, most commonly backed by financial and industrial groups, are used to influence politics and policymakers. The aim of the project was to investigate mutual relations between politics and industrial structure both on the regional and state level. In the course of the project the following issues were investigated:

1. Businessman candidates in regional elections. We build a sophisticated model with substantial microfoundations of voting mechanism to analyze the reasons for businessmen to be elected or at least to participate in elections. We analyze an infinite game of elections where personal beliefs of voters and performance of incumbents, as well as promises of candidates, affect voting behavior of people. In the analysis, we restrict ourselves to a special concept of equilibrium which is close to Markov perfect equilibrium. Special attention is paid to voting strategies of workers of enterprises the leaders of which are candidates in the elections. We analyze comparative statics depending on industrial structure in the region and higher level elections results. The results obtained may be used to explain why businessman candidates who have won the elections may have incentives to provide public goods to the population.

2. Influence of candidates' budget spending on elections. We study a multi-period model where candidates can spend their budgets in several stages. Each period's spending gains candidate support from population, however, population's attitude towards candidates is sticky, in the sense that people take past preferences into account when considering present preferences. Also, people pay attention to the number of supporters of particular candidates, which may be interpreted as desire to resolve asymmetry of information, where some voters are informed and some are not. In the simple case of two periods and two candidates it is already possible to get interesting comparative statics.

3. We used stock market data to analyze the impact of news on capitalization of major Russian companies (Yukos, Lukoil and RAO UES). To perform the study, it was necessary to create a database of news concerning these companies. This was done by analyzing newspaper publications of several years. We found that there is significant connection between the nature of the news and its impact on company's performance as compared to market return. An interesting find is that the extent of this influence varies significantly among different companies.

10. Monetary Policy in Transition Leaders: Kirill Sosunov (NES), Oleg Zamulin (NES) Assistant: Irina Levina (CEFIR)

The project was devoted to both theoretical and empirical analysis of monetary policy in transition countries.

The main results of the project can be summarized as follows:

• We estimated potential costs and benefits of targeting undervalued real exchange rate of Ruble by purchasing FX reserves by the CBR. The main result is that cost (namely inflation and reduction

NES Annual Report 2003—2004 77 of disposable income) largely outweigh benefits arising from higher competitiveness of domestic producers (thesis by O. Obrezkov) • We estimated money demand function for Russia. Our major conclusion is that dollarization is important in formation of money demand, i.e. variables such as depreciation rate of ruble and interest rates on dollar deposits are significant in money demand equation (thesis by M. Borisov) • In order to evaluate optimal monetary policy rule for Russia we built and calibrated several theoretical models of the small open economy which is subject to term-of-trade shock. We found that optimal monetary policy is rule is a hybrid rule in the sense that CB should target some aggregate of domestic price index and nominal exchange rate. (thesis by V. Arshavsky, N. Klykova and A. Mavrenkov) • We also tried to estimate actual policy rule which Central Bank of Russia employs for conduct of the monetary policy. We found that the behavior of CBR can be described in the form of the rule which minimizes weighted sum of the deviations of inflation and real exchange rate from their target values (Thesis by T. Kuzmenko) • In a model with sticky prices we analyzed optimal rate of inflation. We found that in some cases, in particular when price rigidity is asymmetric positive inflation may dominate (in terms of output) zero-inflation policy. (thesis by O. Itskhoki) • We estimated the degree of substitution between domestic and imported goods for various Russian industries. Our conclusion is that for most branches of industry this substitution is very low, i.e. a large proportion of domestically produced goods may be viewed as a compliment rather than substitute for imports. (thesis by M. Shestakova)

11. Models of Competition via Supply Functions with Application to the Network Auctions (Network Auctions) Leader: Alexander Vasin (MSU), Consultants: Francisco Marhuenda, Polina Vasina

The object of this research is to construct a game-theoretic model of the auction via supply functions for the network market and to find a method for computation of the Nash equilibria of this game. On this base, to obtain an estimate for the expected deviation of the auction price from the Walrasian price depending on the characteristics of the market; to evaluate the reduction of the social welfare with respect to competitive equilibrium; to develop recommendations on the market regulation on order to reduce the loss of the social welfare.

In this paper, we have studied the Cournot oligopoly in the local market and in the simple network market with two nodes. For the local market, we have proved existence of the unique Cournot equilibrium for a demand function with non-decreasing elasticity. We have shown that the upper estimate of the difference between the Cournot price and the Walrasian price is proportional to the maximal share of one firm in the total production volume at the competitive equilibrium, and it is inversely proportional to the demand elasticity at the Walrasian price. We obtain a descriptive method for determination of the Cournot outcome under an affine function and the non-decreasing piece-wise constant marginal costs of producers.

For the network market, we determined 3 possible types of local equilibria and obtained for each type the constructive necessary and sufficient condition to be a true Nash equilibrium. For a quasi-symmetric model, where the markets differ only in the numbers of producers, we have studied the Nash equilibrium set depending on parameters of the model.

12. Some Aspects of the Performance of Russian Enterprises: Electricity Consumption and Innovation Activity Leader: Natalia Volchkova (CEFIR) Consultant: Ksenia Yudaeva (CEFIR) Assistant: Natalya Turdyeva (CEFIR)

The first direction of this project was devoted to analysis of innovation activity of Russian firms in 2000- 2001. Based on the firms’ survey data two questions were studied. The first one is the influence of regional features on innovation activity of firms. This research was droved by the notion that the ability of absorb and create of innovations depends on both institutional and physical infrastructure. Our results indicate that among the most substantial effect on innovation activity comes from effective demand, regional institutional setup and physical infrastructure such as communication facility and roads provision.

NES Annual Report 2003—2004 78 At the same time we have not found the effect of education and human capital capacity in the regions on the innovation activity of firms in these regions. The second empirical project was devoted to analysis of competition on the innovations and was droved by the whether the instruments of competition policy can be used to stimulate the innovation activity in Russian firms. We have not fond the empirical support for the classical result of the inverted U-shaped dependence of competition and innovations. Our explanation of the result is mostly based on the lack of sufficient volume of data.

The theoretical research within this direction was devoted to analysis of the innovation growth in the economy well endowed with natural resources and subjected to the increase in the external price of this resource on the world market. The main stylized fact for the model is that the economical growth in Russia in 1999-2003 was not well balanced and a sufficient part of which was due to high prices of natural exhaustible resources (oil and gas). The conditions under which the high resource prices suppress R&D growth in the manufacturing sector and undermine the technological progress in the economy were obtained. It was also shown that the greater is level of the «concern of the future», the less is the degree of dependence of the economy on exogenous resource price.

The second direction of research deals with the analysis of industrial electricity consumption in Russia during five years (1998—2002) and the estimation of the elasticity of industrial electricity demand in Russia. The database on electricity consumption was constructed for four Russian regions. The main tested hypothesis was whether electricity demand is price responsive and how company characteristics influence electricity demand. For purpose of estimation generalized Cobb-Douglas and translog cost functions was employed. The principal finding are that electricity demand is price responsive — the own price elasticity is about -0.5 and company characteristics matter.

13. Electricity Restructuring and Regulatory Reform in Russia Leader : Oleg Eismont (NES) Assistant: Andrey Rachinsky (CEFIR)

The project is devoted to efficient usage of natural resources in Russia and has several subprojects. Using a game model we study behavior of Russia, transistors and Western Europe at natural gas market. The model helps to estimate benefits for Russia from new opportunities of gas transportation.

A theoretical model was proposed to describe the behavior of regulated heat electric stations. In particular the model shows that if a regulator establishes a unique price for heat, several heat stations working on one market could start behaving inefficiently.

We evaluate competitiveness of new free electricity market. The main difficulty in this research was in parallel working of regulated electricity market.

Using data on auction data in Novgorod region we estimate timber rent. We show that about one dollar per cubic meter is lost due to imperfection in organization of auctions.

NES Annual Report 2003—2004 79 Appendix 5: Conference Programs

XIV Research Conference (October 2003)

Thursday, October 9, 2003

9:45—10:00, room 521 Registration

10:00—10:15, room 521 Opening: Valery Makarov, Barry Ickes

10:15—11:15, room 521 Session 1: New Economics and the Internet Project leader: Valery Makarov Chairman: Barry Ickes Valery Makarov: On Modeling Knowledge Economy Discussant: Anatoly Kozyrev

11:40—12:40, room 521 Session 2: Innovations and Economic Growth in Transition Economies Project leaders: Victor Polterovich, Vladimir Popov Chairman: Konstantin Sonin Victor Polterovich, Vladimir Popov: Stages of Development and Economic Policy Victor Polterovich, Alexander Tonis: Imitation and Innovation at Various Stages of Development Discussant: Andrey Yakovlev

12:50—13:50, room 521 Session 3: The Behavior of the Real Exchange Rates Project leaders: Kirill Sosunov, Oleg Zamulin Chairman: Stanislav Anatolyev Kirill Sosunov, Oleg Zamulin: What Stands Behind the Real Appreciation of the Russian Ruble in 1998-2003? Discussant: Vladimir Popov

15:10—16:50, room 521 Session 4: Chairman: Omer Moav

Tax Optimization: the Role of Informational Asymmetries Project leaders: Alexander Vasin, Francisco Marhuenda Alexander Vasin, Francisco Marhuenda, Polina Vasina: The Optimal Tax Choice under Tax Evasion Francisco Marhuenda, Alexander Vasin, Polina Vasina: Optimal Taxation, Tax Evasion and the Structure of Firms Discussant: Evsey Gurvich

Topics in Economic Theory Project leaders: Konstantin Sonin, Ariane Lambert-Mogiliansky Konstantin Sonin, Ariane Lambert-Mogiliansky: Corruption and Corruption in Procurement Trends Discussant: Alexander Tonis

17:00—18:30, room 521 Distinguished Lecture: Chairman: Barry Ickes Reuben Gronau (Hebrew University): Zvi Griliches Contribution to the Theory of Human Capital — the Schooling Ability Controversy

NES Annual Report 2003—2004 80 Friday, October 10, 2003

10:00—11:30, room 521 Session 5: Chairman: Pavel Katyshev

Dynamics and Predictability in Russian Financial Markets Project leader: Stanislav Anatolyev Stanislav Anatolyev and Alexander Gerko: The Trading Approach to Testing for Predictability and Market Efficiency Discussant: Oleg Zamulin

Evaluating Performance and Strategy of Mutual Funds Project leader: Alexei Goriaev Alexei Goriaev: Predictability of Mutual Fund Performance Discussant: Stanislav Anatolyev

11:50—12:50, room 521 Session 6: Electricity Restructuring and Regulatory Reform in Russia Project leaders: Oleg Eismont, Geoffrey Rothwell, Sergey Chernavsky Chairman: Victor Polterovich Oleg Eismont: Restructuring Electricity Sector in Russia: perspectives and problems Discussant: Vadim Kleiner

15:30—16:30, room 521 Session 7: Institutional Constraints to the Growth of Small Businesses in Russia Project leaders: Sergei Guriev, Leonid Polishchuk Leonid Polishchuk: Bureaucrats, Businessmen, and Middlemen: gainers and losers Discussant: Oleg Eismont

17:00—18:30, room 521 Keynote Address: Chairman: Valery Makarov Sergey Vasiliev (Member of the Federation Council, Chair of the Council of Federation Committee on Financial Markets and Currency Circulation): Prospects of Development on Financial Markets in Russia

Saturday, October 11, 2003

10:00—10:40, room 521 Session 8: Topics of the Theory of Money Project leader: Alexei Deviatov Chairman: Tatyana Maleva Alexei Deviatov, Igor Dodonov: Another Model of Non-Fundamental Exchange Rate Uncertainty Discussant: Grigory Kosenok

10:50—12:00, room 521 Session 9: The Effect of WTO Accession on Russia Project leaders: Irina Denisova, Ksenia Yudaeva Chairman: Natalia Volchkova Kseniya Yudaeva, Alexander Alekseev: Estimation of the Russia's trade policy options with the help of the Computable General Equilibrium Model Akhmed Akhmedov, Eugenia Bessonova, Ivan Cherkashin, Irina Denisova, Elena Grishina, Denis Nekipelov, Andrei Vykhristyuk: WTO Accession and the Labor Market: estimations for Russia Discussant: Vladimir Salnikov

12:20—13:00, room 521 Session 10: Empirical Issues of Industrial Organization Project leader: Grigory Kosenok Chairman: Oleg Zamulin

NES Annual Report 2003—2004 81 Marina Kartseva, Grigory Kosenok and Gulnara Nurullaeva: Growth of Russian Enterprises in Major Industries during the Transition: an empirical analysis Discussant: Svetlana Avdasheva

13:10—14:00, room 521 Session 11: Trend of the Banking Sector in Russia and Bank Ratings Project leaders: Anatoly Peresetsky, Alexander Karminsky Consultant: A. H. O. van Soest Chairman: Alexei Goriaev Sergey Golovan, Alexander Karminsky, Alexander Kopylov, Anatoly Peresetsky: Russian Banks Probability of Default Models I. Models with Clustering Sergey Golovan, Mikhail Evdokimov, Alexander Karminsky, Anatoly Peresetsky: Russian Banks Probability of Default Models II. Models with Macroeconomic Variables Discussant: Sergey Zamkovoy

14:00, room 521 Closing session: Barry Ickes, Valery Makarov

NES Annual Report 2003—2004 82 XV Research Conference (April 2004)

Wednesday, April 7, 2004

17:30—17:45, room 521 Registration

17:45—18:00, room 521 Opening ceremony: Gur Ofer, Valery Makarov

18:00—19:30, room 521 Distinguished Lecture: Chairman: Gur Ofer Vito Tanzi (Inter-American Development Bank): Globalization and Its Impact of Tax Systems

Thursday, April 8, 2004

10:00—12:00, Session 1 A (room 521) B(room 1121-1) Knowledge Economy Repeated Economic Interactions: Regulation and Imperfect Monitoring Project leader: Valery Makarov

Chairman: Anatoly Kozyrev Project leader: Grigory Kosenok

Consultant: Ariane Lambert-Mogiliansky Annа Burak: Knowledge Concentration in Russia Chairman: Alexei Deviatov 1986—2002

Igor Gorshunov: Should Intellectual Property Anton Anshin: Non Trigger Punishments in Rights Be Protected? Cournot Duopoly Dmitry Maniakov: Worldwide Concentration of Natalya Sizova: Optimal Trigger Strategies with Fundamental Research. Analysis of the Key-Factors Differentiated Products and Trends Vasily Zaitsev: Corruption in Entry Procedures Anton Startsev: Modeling Knowledge

Concentration

12:30—14:00, room 521 Keynote Address: Chairman: Valery Makarov Peter Aven (President, Alfa-Bank): The Russian Economy: is Growth Steady?

15:00—17:00, Session 2 A (room 521) B (room 1121-1) Dynamics in Russian and Electricity Restructuring Other Financial Markets and Regulatory Reform in Russia

Project leader: Stanislav Anatolyev Project leaders: Oleg Eismont, Sergey Chernavsky Consultant: Dick van Dijk Chairman: Grigory Kosenok Chairman: Alexei Goriaev Andrey Bychkov: An Analysis of the Structure of Natalia Guseva: Value at Risk: in Search for the Russian-European Natural Gas Market Most Appropriate Model. The Comparison of Maxim Kukoverov: Russian Electricity Market Different Approaches Reform Olga Zagvozdkina: Study of Order Flows on Alexey Moskvichev: Optimal Regulation of Heat MICEx Electric Stations Alexander Varakin: Dynamic Model for Return Anastasia Sarson: Who Appropriates Timber Rent and Trading Volume for Two Common Stocks in Russia? Boris Livshits: Modeling Realized Volatility as a Victor Shemanaev: The Analysis of Short-run Long Memory Process Development of Russia’s Economy Using Demand Andrey Shabalin: The Effect of Durations on Models Volatility of Returns Ilya Shirokov: Natural Gas Market: gas trade between Russia and Western Europe

NES Annual Report 2003—2004 83

17:15—18:40, Session 3 A (room 521) B (room 1121-1) Portfolio Management at Chairman: Oleg Eismont the Russian Financial Market Topics in the Theory of Money Project leader: Alexei Goriaev Project leader: Alexei Deviatov Consultant: Theo E. Nijman Sergey Kopylov: Another Model of Price Rigidity Chairman: Stanislav Anatolyev Stanislav Ponomarenko: Welfare Costs of Inflation in Russia Roman Golovin: Local Return Factors in the Russian Stock Market Effects of Government Policies Andrey Kobelev: Performance Evaluation of in Equilibrium Macroeconomic Models Russian Mutual Funds Project leader: Alexander Vasin Sergey Prikhodko: Benefits from International Consultants: Francisco Marhuenda, Diversification for Russian Investors Polina Vasina Strel’nikov Sergei: Optimal Taxation of Homogeneous Firms in the Small/Retail Business under Tax Evasion

Friday, April 9, 2004

10:00—11:30, Session 4 A (room 521) B (room 1121-1) University System Some Aspects of the Performance and Labor Market in Russia of Russian Enterprises: Electricity Project leaders: Irina Denisova, Consumption and Innovation Activity Leonid Polishchuk Consultant: Zarema Kasabieva Project leader: Natalia Volchkova Chairman: Kirill Sosunov Consultant: Kseniya Yudaeva Chairman: Konstantin Sonin Galina Zudenkova: Equal Access to Higher Education and Economic Efficiency: is there a Svetlana Egorova: Sectoral and Regional Analysis trade-off? of Industrial Electricity Demand in Russia Alla Kryssanova: The Impact of Different Types Dmitry Ermolin: Regional Analysis of of Education on Graduates` Earnings Innovation Activity in Russian Firms Yulia Lee: Vouchers versus Public-Private System Vasily Zuev: The Impact of Competition on of Higher Education Innovation Olga Shirokova: Education and Growth: the Case Alexander Semenov: The Innovations Dynamics of Russia of an Economy with Fast-Growing Exhaustible Resource Sector

11:45—13:45, Session 5 A (room 521) B (room 1121-1) Special-Interest Politics, Democratic Globalization and Economic Growth in Credibility, and Industrial Structure Developing and Transition Economies

Project leader: Konstantin Sonin, Project leaders: Victor Polterovich, Consultant: Scott Gehlbach Vladimir Popov Chairman: Natalia Volchkova Chairman: Oleg Zamulin

Natalya Eremeeva: Political Component of Stock Oleg Bogoslavsky: Educational Subsidies and Returns Brain Drain: government policy implications Vladislav Nigmatulin: Business Candidate in Andrey Vashevnik: Raw-exporting Counties and General Election Economic Growth Maria Petrova: Special Interests in Local Elections Dzhangir Dzhangirov: Outsourcing vs. FDI: Vasily Starostenko: Informed Voting Advantages and Disadvantages for Recipient Igor Kheifets: Fish Quota Auctions in Russia: Country budget constraints and efficiency Alexey Debelov: Institution-based Monopoly as a

NES Annual Report 2003—2004 84 Possible Source of Club Convergence Andrey Prudnikov: Impact of Stock Market and Bank System Development on Economic Growth at Different Stages of Industrialization

14:50—17:05, Session 6 A (room 521) B (room 1121-1) Monetary Policy in Transition Economies Chairman: Pavel Katyshev

Project leaders: Kirill Sosunov, Oleg Zamulin Effects of Government Policy Chairman: Victor Polterovich in Equilibrium Macroeconomic Models Project leader: Alexander Sotskov Victor Arshavsky: Exogenous Exchange Rate Arseniy Skovrtsov: Evaluation of Taxation and Shocks and Monetary Policy Rules in a Small Open Inflation Influence on Basic Economic Figures Economy with Foreign Currency Pricing Michael Borisov: Money demand and Trend of the Banking Sector in dollarization in Russia Russia and Bank Ratings III Natalia Klykova: Monetary Policy and External Project leaders: Аlexander Karminsky, Anatoly Shocks in a Small Open Economy Peresetsky Tatyana Kuzmenko: Measuring Monetary Policy Consultant: Bertrand Melenberg in Russia Andrey Mavrenkov: The Comparison of Alexander Driga: Modeling of Ratings of World Alternative Monetary Policies in an Open Ratings Agencies Moody’s and Standard&Poors Economy with Credit Constraints and Natural Victor Kudinov: Semiparametric Models of Resource Producing Export Sector Russian Banks Defaults Oleg Obrezkov: Inflationary Consequences of the Andrey Rygov: An Analysis of Stability of Models Real Exchange Rate Targeting for Banking Ratings with the Use of Macro Data Maria Shestakova: Elasticities of Substitution Ekaterina Sidorova: Ratings of Investment between Imported and Domestically Produced Attractiveness of Russian Regions. Models Goods for Russian Economy Olga Yas’ko: Modeling of Russian Banks Ratings. Comparative Analysis of the IC ”Rating” and the “Expert RA” Agencies Ratings

17:20—18:50, room 521 Distinguished Lecture: Chairman: Gur Ofer Justin Lin (Beijing University): Viability, Economic Transition, and Reflection of Neoclassical Economics

18:50, room 521 Closing ceremony: Gur Ofer, Valery Makarov

NES Annual Report 2003—2004 85 Appendix 6: NES Publications, 1998—2004

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?”

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”

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”

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

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

NES Annual Report 2003—2004 86 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”

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”

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”

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”

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?”

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”

NES Annual Report 2003—2004 87

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

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

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

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

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”

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

NES Annual Report 2003—2004 88

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. (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”

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”

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

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”

Golovko E., Sidorov V., Peresetsky A., Karminsky A., A. H. O. van Soest. (2002) “Analysis of Russian Banks Ratings”

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., 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”

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

NES Annual Report 2003—2004 89

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”

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”

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., 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”

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”

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

NES Annual Report 2003—2004 90 Course of Lectures

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”

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

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

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

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

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

NES Annual Report 2003—2004 91 Appendix 7: Background Information on Students

Class of 2004

GEOGRAPHIC # NAME SEX D.O.B. INSTITUTION OF PRIOR STUDY DEGREE ORIGIN 1 Anton Anshin M 08.04.80Moscow Math Dept., Moscow State University Diploma 2 Victor Archavsky M 25.05.79Moscow Applied Math Dept., Moscow State Diploma Institute of Electronics and Mathematics 3 Oleg Bogoslavsky M 15.12.79Moscow Math Dept., Moscow State University Diploma 4 Mikhail Borisov M 19.01.81St. Petersburg Computational Math and Cybernetics Diploma Dept., Moscow State University 5 Anna Burak F 08.10.80Cheliabinsk Diploma Applied Math Dept., Moscow Institute of Post- Engineering and Physics graduate 6 Andrey Bytchkov M 05.01.76Moscow Physics Dept., Moscow State University Kandidat nauk 7 Alexander Varakin M 24.05.79Moscow Math Dept., Moscow State University Diploma 8 Andrew Vashevnik M 26.07.82Moscow Math Dept., Moscow State University Diploma Post- graduate 9 Roman Golovin M 29.08.80Moscow Economic Dept., Moscow Aviation Diploma Institute 10 Igor Gorshunov M 22.01.81 Zelenodolsk, Applied Math and Physics Dept., Moscow Diploma Tatarstan Institute of Physics and Technology 11 Natalia Guseva F 15.02.80 Cheliabinsk Math Dept., Cheliabinsk State University Diploma 12 Alexey Debelov M 30.11.81 Novosibirsk Economic Dept., Novosibirsk State Diploma University 13 Dzhangir Dzhangirov M 21.09.81Sumgait, Math Dept., Moscow State University Diploma Azerbaidzhan Post- graduate 14 Alexey Dmitriev* M 19.10.76 Moscow Math Dept., Moscow State University Diploma 15 Alexander Driga M 27.05.82 Krementchug, Applied Math and Physics Dept., Moscow Diploma Poltava obl. Institute of Physics and Technology 16 Svetlana Egorova F 21.12.79 Ukhta, Komi Math Dept., Moscow State University Diploma 17 Natalia Yeremeyeva F 23.02.80 Moscow Economic Dept., Moscow State University Diploma 18 Dmitry Ermolin M 28.02.79 Kaliningrad, Physics Dept., Moscow State University Diploma Moscow obl. 19 Olga Zagvozdkina F 04.05.81 Ljubertsi, Computational Cybernetics and Math Diploma Moscow obl. Dept., Moscow State University 20 Vasily Zaitsev M 30.12.80 Moscow Math Dept., Moscow State University Diploma 21 Galina Zudenkova F 05.11.78 Sergiev Posad, Applied Math Dept., Peoples’ Friendship Diploma Moscow obl. University of Russia 22 Vasily Zuev M 02.08.80 Kurgan Economics Dept., Kurgan State University Diploma 23 Asel Ibragimova* F 20.06.77 Bishkek, Economics and Business Dept., MUK Diploma Kyrgyzstan 24 Oleg Itskhoki M 07.01.83 Moscow Economic Dept., Moscow State University Diploma 25 Natalia Klykova F 13.02.79 Ramenskoe, Math Dept., Moscow State University Diploma Moscow obl. 26 Andrey Kobelev M 23.08.79 Nizhniy Tagil Applied Physics Dept., Moscow Institute Diploma of Physics and Technology 27 Alexei Komarov* M 15.02.82 Zaporozhje, Computational Cybernetics and Math Diploma Ukraine Dept., Moscow State University 28 Alexey Kononenko* M 15.03.82 Moscow Economics Dept., Institute of Asian and Diploma African Studies 29 Sergey Kopylov M 14.05.78 Moscow Applied Math and Economics Dept., Diploma Moscow Institute of Physics and Post- Technology graduate 30 Alla Kryssanova F 07.03.77 Ekibastus, Economics Dept., Pavlodar State Diploma Pavlodar obl., University Post- Kazakhstan graduate

NES Annual Report 2003—2004 92 31 Victor Kudinov M 28.05.79 Moscow Applied Math and Economics Dept., Diploma Moscow Institute of Physics and Technology 32 Tatyana Kuzmenko F 15.03.75 Bilibino, Economics Dept., Novosibirsk State Diploma Magadan obl. University 33 Maxim Kukoverov M 24.07.81 Zvezdnij Computational Cybernetics and Math Diploma Gorodok, Dept., Moscow State University Moscow obl. 34 Julia Lee F 15.08.81 Ushtobe, Economics Dept., Kazakhstan Economics Diploma Kazakhstan University 35 Boris Livshits M 23.01.81 Sverdlovsk Math Dept., Ural State University Diploma 36 Andrey Mavrenkov M 25.10.81 Zagorsk Applied Math and Economics Dept., Diploma Moscow Institute of Physics and Technology 37 Dmitry Maniacov M 04.09.81 Odessa, Economics Dept., ULIM, Moldova Diploma Ukraine 38 Alexei Moskvitchev** M 06.05.80 Kaliningrad, Math Dept., Moscow State University Diploma Moscow obl. 39 Vladislav Nigmatullin M 04.02.72 Novosibirsk Physics Dept., Moscow State Institute of Diploma Steel and Alloys 40 Marina Novak* F 23.02.79 Almaty Economics Dept., Novosibirsk State Diploma University 41 Oleg Obrezkov M 02.06.81 Moscow Math Dept., Moscow State University Diploma; Post- graduate 42 Maria Petrova F 27.12.79 Kazan Computational Cybernetics and Math Diploma Dept., Moscow State University 43 Stanislav Ponomarenko M 12.07.81 Chernigovka, Applied Physics Dept., Moscow Institute Diploma Primorsky kray of Physics and Technology 44 Sergey Prikhodko** M 07.08.80 Platovo, Economics Dept., Moscow State Diploma Rostov obl. University 45 Andrei Prudnikov M 21.12.80 Moscow Math Dept., Moscow State University Diploma; Post- graduate 46 Andrey Ryzhov M 20.12.72 Thick, Math Dept., Moscow State University Diploma Novosibirsk obl. 47 Anastasia Sarson F 22.06.80 Dolgoprudniy, Math Dept., Moscow State University Diploma Moscow obl. 48 Alexander Semenov M 12.05.80 Moscow Math Dept., Moscow State University Diploma; Post- graduate 49 Ekaterina Sidorova F 13.08.80 Moscow Math Dept., Ural State University Diploma 50 Natalia Sizova F 06.02.81 Shihani, Applied Math and Economics Dept., Diploma Saratov obl. Moscow Institute of Physics and Technology 51 Arseniy Skvortsov M 19.08.74 Shcherbinka, Faculty of Information Security, Moscow Diploma Moscow obl. Engineering Physics Institute 52 Vasily Starostenko M 24.09.81Miass, Radio Engineering and Cybernetics Dept., Diploma Cheliabinsk Moscow Institute of Physics and obl. Technology 53 Anton Startsev M 21.04.78 Zheleznodoro System Analysis and management Dept., Diploma zhniy, Moscow The “Dubna” International University for obl. Nature, Society and Men 54 Sergei Strelnikov M 13.08.70 Barnaul Math Dept., Moscow State University Diploma; Post- graduate 55 Eugeny Firsov*** M 13.09.77 Saint- History Dept., Saint-Petersburg State Diploma Petersburg University 56 Petr Kharchenko* M 24.09.81 Novosibirsk Economic Dept., Novosibirsk State Diploma University 57 Igor Kheifets M 06.05.80 Moscow Math Dept., Moscow State University Diploma 58 Andrey Shabalin M 21.06.80 Moscow Math Dept., Moscow State University Diploma 59 Victor Shemanaev M 17.03.81 Moscow Math Dept., Moscow State University Diploma

NES Annual Report 2003—2004 93 60 Marina Shestakova M 28.02.80 Tver Computational Cybernetics and Math Diploma Dept., Moscow State University 61 Ilya Shirokov M 04.11.81 Moscow Math Dept., Moscow State University Diploma 62 Olga Shirokova F 14.01.73 Kazan Computational Cybernetics and Math Diploma Dept., Kazan State University 62 Olga Yasko F 26.01.76 Kashira, Math Dept., Moscow State University Diploma Moscow obl. * Non-graduate **Returned from Academic leave. *** Granted academic leave.

NES Annual Report 2003—2004 94 Class of 2005

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 Diploma Saint- Economic Dept., Saint-Petersburg State 3 Vladimir Avrutov M 12,05,80 Post- Petersburg Polytechnic University graduate Applied Math and Economics Dept., 4 Vasily Akimov M 16.01.81Moscow Moscow Institute of Physics and Diploma Technology Economics Dept., Novosibirsk State 5 Grigory Akshonov M 22.06.82Novosibirsk Diploma University Economics Dept., Novosibirsk State 6 Igor Alekseev M 05.06.80Novosibirsk Diploma University Economics Dept., Higher School of 7 Alexander Apokin M 07.06.83Moscow 4 year Economics Computational Math and Cybernetics 8 Maxim Afanasiev**** M 29.05.80 Tambov obl. Diploma Dept., Moscow State University 9 Sergey Baum*** M 23.02.80 Moscow Math Dept., Moscow State University Diploma Ufa, Economic Dept., Ufa State Aviation 10 Dinara Bayazitova F 16.11.80 Diploma Bashkortostan Technical University Balashikha, 11 Sergey Belousov M 26.06.83 Economic Dept., Moscow State University 4 year Moscow obl. 12 Ilya Belyaev M 09.10.81Ekaterinburg Math Dept., Moscow State University 5 year Computational Math and Cybernetics 13 Fedor Bizikov M 11.07.81Moscow Diploma Dept., Moscow State University 14 Valentina Bogomolova F 14.12.76 Minsk Physics Dept., Belarusian State University Diploma Rostislav Saint- Math Dept., Saint-Petersburg State 15 M 04.05.82 Diploma Bogoslovsky***** Petersburg University 16 Eugeny Bratsev**** M 29.11.78 Magnitogorsk Math Dept., Moscow State University Diploma Applied Physics Dept., Moscow Institute 17 Ilya Bruhanov M 17.11.81Barnaul Diploma* of Physics and Technology Computational Cybernetics and Math 18 Eugene Vasin** M 04.06.81Moscow Diploma Dept., Moscow State University Korablino, Physics Dept., Ryazan State Radio 19 Sergey Vlasov M 11.07.79 Diploma Ryazan obl. Engineering Academy Economics Dept., Higher School of 20 Natalie Volodina F 20.03.81 Moscow Diploma* Economics Sevastopol, 21 Andrey Voltornist M 03.03.80 Math Dept., Moscow State University Diploma Ukraine Economic Dept., Novosibirsk State 22 Ilya Vorobiev M 22.04.82Novosibirsk Diploma University 23 Grigory Vorotyntsev M 28.11.81 Moscow Math Dept., Moscow State University Diploma Applied Math and Economics Dept., 24 Alexander Gorbenko M 14.10.81Zaporozhje Moscow Institute of Physics and Diploma Technology Computational Math and Cybernetics 25 Ekaterina Gorshkova F 28.08.81 Severodvinsk Diploma Dept., Moscow State University Economics Dept., Moscow State 26 Eugeny Grigoryev** M 22.03.82Moscow Diploma University Diploma; Saint- Economics Dept., Saint-Petersburg State 27 Elena Dengova**** F 28.03.81 Post- Petersburg University graduate Applied Math Dept., North Osetia State 28 Albina Dzhioeva F 15.07.80 Vladikavkaz Diploma University Applied Math and Economics Dept., Reutov, 29 Kirill Evdokimov M 05.03.82 Moscow Institute of Physics and Diploma* Moscow obl. Technology

NES Annual Report 2003—2004 95 Economics Dept., Higher School of 30 Alexandra Evtifieva F 31.08.82 Krasnojarsk Diploma* Economics 31 Nadezhda Zhukova*** F 17.12.82 Moscow Math Dept., Moscow State University Diploma Kolomna, Economics Dept., Moscow State 32 Alexei Zabotkin M 02.08.77 Diploma Moscow obl. University Applied Math Dept., Moscow Institute of 33 Marat Zaidullin M 09.12.82Ekaterinburg Diploma* Physics and Technology Economics Dept., Higher School of 34 Roman Silberman M 19.12.83 Cheliabinsk Diploma Economics Physics Dept., Moscow Institute of Physics 35 Ilya Zyuganov**** M 18.09.81Moscow Diploma* and Technology Informatics and Control Systems Dept., 36 Anatoly Kabanov*** M 05.02.81Moscow Bauman Moscow State Technical Diploma University Applied Math and Economics Dept., Alexander 37 M 26.01.80 Cheliabinsk Moscow Institute of Physics and Diploma Kalinnikov**** Technology Anatoly Applied Math Dept., Moscow State 38 M 29.04.80 Moscow obl. Diploma Kamchatnov**** Institute of Electronics and Mathematics Applied Physics Dept., Moscow Institute 39 Grigory Karasev M 23.09.82Simferopol Diploma* of Physics and Technology Yerevan, Computational Math and Cybernetics 40 Georgiy Kartashov*** M 23.10.82 Diploma Armenia Dept., Moscow State University

Computational Math and Cybernetics 41 Victor Kitov*** M 30.11.82Moscow Diploma* Dept., Moscow State University

Economics Dept., Voronezh State 42 Andrei Kolokolnikov M 23.10.81Voronezh Diploma University Diploma; Darya Computational Math and Cybernetics 43 F 14.11.77 Moscow Post- Kornyushina**** Dept., Moscow State University graduate Leninsk- Economics Dept., Novosibirsk State 44 Alexander Korotkov M 16.11.81 Diploma Kuznetskiy University Applied Physics Dept., Moscow Institute 45 Petr Levin***** M 12.06.77 Moscow Diploma of Physics and Technology 46 Sergey Lobanov M 13.03.80 Moscow Math Dept., Moscow State University Diploma Kaliningrad, 47 Sergey Lytchagin M 02.08.81 Math Dept., Moscow State University Diploma Moscow obl. Khotkovo, 48 Alexey Lyubimov M 13.08.80 Physics Dept., Moscow State University Diploma Moscow obl. Applied Math and Economics Dept., 49 Ruslan Mavlikhanov M 25.12.79Evpatoriya Moscow Institute of Physics and Diploma Technology Dzerzhinskiy, Economics Dept., Institute of Asian and 50 Michael Mikhalev**** M 21.12.79 Diploma* Moscow obl. African Studies 51 Ivan Nikitin*** M 21.05.83 Moscow Math Dept., Moscow State University 4 year Applied Physics Dept., Moscow Institute Diploma* 52 Eugeny Oreshkin M 24.12.82Lytkarino of Physics and Technology 53 Maxim Osadchii M 13.10.63Novosibirsk Physics Dept., Moscow State University Diploma Economics Dept., Novosibirsk State 54 Daria Pishchik F 02.03.82 Novosibirsk. Diploma University Economics Dept., Moscow State 55 Alexei Pylaev*** M 20.12.81 Moscow obl. Diploma* University Economics Dept., Novosibirsk State 56 Sergey Popov M 26.09.82Novosibirsk Diploma University Applied Math and Economics Dept., 57 Alexey Razin**** M 12.05.82Orenburg Moscow Institute of Physics and Diploma* Technology International Relations Dept., Kazakhstan 58 Yerlan Ramazanov M 06.06.82 Almaty obl. Diploma State University Diploma; 59 Sergey Rtishchev M 29.03.80 Voronezh Math Dept., Moscow State University Post- graduate

NES Annual Report 2003—2004 96 60 Alexander Rumyantsev M 10.01.80Moscow Math Dept., Moscow State University Diploma Special Mashinery Dept., Bauman Moscow 61 Timur Salikov M 01.08.82Moscow 6 year State Technical University Zhambilsk obl., Economics Dept., International Academy 62 Amina Skakova F 10.02.83 Diploma* Kazakhstan of Business Diploma; 63 Konstantin Soshnikov M 26.09.80 Moscow Math Dept., Moscow State University Post- graduate Diploma; 64 Mikhail Staroverov M 17.11.79Moscow Math Dept., Moscow State University Post- graduate Khmelnitskiy, Applied Physics and Math Dept., Moscow 65 Pavel Stetsenko M 07.12.81 Diploma Ukraine Institute of Physics and Technology Economics Dept., Novosibirsk State 66 Yury Stolbov M 31.07.82Tjumen obl. Diploma University 67 Ivan Strigin**** M 31.05.78Novosibirsk Math Dept., Peoples’ Friendship University Diploma Berdsk, Economics Dept., Novosibirsk State 68 Alexander Tarasenko M 07.06.82 Novosibirsk Diploma University obl. 69 Dzambolat Tulatov M 12.03.79Vladikavkaz Engineering Dept., Bogazici University Diploma Radiotechnics Dept., Ural State Technical 70 Vera Utekhina*** F 03.06.67 Nizhniy Tagil Diploma University Special Mashinery Dept., Bauman Moscow 71 Pavel Fomin M 02.05.82Moscow 5 year State Technical University 72 Konstantin Khorev M 05.10.81Zhukovsky Math Dept., Moscow State University Diploma Applied Math Dept., Novosibirsk State 73 Sergey Chaplygin*** M 08.09.76Novosibirsk Diploma University Applied Physics Dept., Moscow Institute 74 Anton Cheryomukhin M 14.06.82Moscow Diploma* of Physics and Technology Applied Math Dept., Moscow State 75 Vadim Cherepanov M 02.03.78Moscow Diploma Institute of Electronics and Mathematics Applied Math and Economics Dept., 76 Ruslan Churbanov** M 25.12.80Vladivostok Moscow Institute of Physics and Diploma Technology Diana 77 F 24.07.82 Kazan Math Dept., Moscow State University Diploma Shamsutdinova** 78 Eugeny Sheyenko M 16.01.81Moscow Sociology Dept., Moscow State University Diploma 79 Ilya Sheinzon M 28.02.82Moscow Math Dept., Moscow State University Diploma 80 Oleg Shibanov M 10.06.81Izhevsk Math Dept., Moscow State University Diploma 81 Dmitry Shirinkin**** M 09.12.79Sevastopol Geology Dept., Moscow State University Diploma Economics Dept., Higher School of 82 Alexey Shishkin M 09.04.81Kirov Diploma Economics Applied Math and Economics Dept., 83 Mikhail Shmonov M 23.02.83Arzamas-16 Moscow Institute of Physics and Diploma* Technology Applied Math and Economics Dept., 84 Mark Shmulevich*** M 18.07.82Moscow Moscow Institute of Physics and Diploma* 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 2003—2004 97 Appendix 8: Applicant Profiles

Admission Campaign 2003

% Among them of TSA Men % Women % Total # of Students Applied (TSA): 171 100% 126 73,7% 45 26,3% Moscow Applicants 135 78,9% 99 73,3% 36 26,7% Regional Applicants: 36 21,1% 27 75,0% 9 25,0% Novosibirsk 14 8,2 % 10 71,4% 4 28,6% Almaty 22 12,9% 17 77,3% 5 22,7% Profile Average age 22,9 Married 11 6,4% 7 63,6% 436,4% Muscovites 56 32,7% 43 76,8% 1323,2% Need dormitories 79 46,2% 60 75,9% 19 24,1% Educational Background and Degrees: Mathematics 67 39,2% 48 71,6% 1928,4% Physics 23 13,5% 21 91.3% 8,7 30% Economics 53 31,0% 34 64,2 1935,8% Post-graduate students at other U 9 5,3% 5 55,6% 4 44,4% Plan to pursue studies at the PhD 69 40,4% 51 73,9% 18 26,1% NES Preparatory courses – English 48 28,1% 34 70,8 14 29,2 NES Preparatory courses – Math 107 62,6% 78 72,9 29 27,1 The main institutions students came from: Moscow State University 55 32,2% 41 74,5% 14 25,5% Mosc. Inst. of Physics and Techn. 29 17,0% 28 96,6% 1 3,4% Novosibirsk State University 17 9,9% 13 76,5% 4 23,5% Higher School of Economics 7 4,1% 3 42,9% 4 57,1% Kazakh National University 5 4,7% 4 80,0% 1 20,0% Sources of Information about NES Booklet (spravochnik) 23 13,5% 17 73,9% 6 26,1% Poster in University 0 0,0% - - Friends 114 66,7% 85 74,6% 2925,4% Internet 9 5,3% 5 55,6% 444,4% Other sources 23 13,5% 18 73,9% 5 26,1%

NES Annual Report 2003—2004 98 Admission Campaign 2004

% of Among them TSA Men % Women % Total # of Students Applied (TSA): 196 100% 124 63,3% 72 36,7% Moscow Applicants 158 80,6% 103 65,2 % 55 34,8% Regional Applicants: 38 24,9% 21 55,2% 17 44,7% Novosibirsk 11,7 15 65,2% 8 34,8% Almaty 3,6% 3 42,9% 4 57,1% Vladivostok 8 4,1% 3 37,5% 3 62,5% Profile Average age 22,2 Married 10 5,1% 4 40,0% 6 60,0% Muscovites 57 29,1% 37 64,9% 20 35,1% Need dormitories 101 51,5% 62 61,4% 39 38,6% Educational Background and Degrees: Mathematics 86 43,9% 49 57,0% 37 43,0% Physics 34 17,3% 29 85,3% 5 14,7% Economics 48 24,5% 28 58,3% 20 41,7% Post-graduate students at other U 0 0,0% 0 0,0% 0 0,0% Plan to pursue studies at the PhD 66 33,7% 43 65,2% 23 34,8% NES Preparatory courses – English 61 31,1% 36 59,0% 25 41,0% NES Preparatory courses – Math 116 59,2% 69 59,5% 47 40,5% The main institutions students came from: Moscow State University 70 35,7% 39 55,7% 31 44,3% Mosc. Inst. of Physics and Techn. 34 17,3% 30 88,2% 4 11,8% Novosibirsk State University 23 11,7% 16 69,6% 7 30,4% Higher School of Economics 10 5,1% 9 90,0% 1 10,0% Voronezh State University 5 2,6% 0 0,0% 5 100% Moscow Physics Institute 2 1,0% 0 0,0% 2 100,0% Sources of Information about NES Booklet (spravochnik) 19 9,7% 12 63,2% 7 36,8% Poster in University 19 9,7% 0 0,0% 19 100,0% Friends 147 75,0% 91 61,9% 56 38,1% Internet 12 6,1% 9 75,0% 3 25,0% Other sources 15 7,7% 10 66,7% 5 33,3%

NES Annual Report 2003—2004 99 Appendix 9: Placement of NES Graduates, 2002—2004

Class of 2003

# Name Placement 1 Maxim Avdonin PricewaterhouseCoopers, Audit Consultant, Moscow 2 Pavel Azgaldov Economic Expert Group, Consultant, Moscow 3 Marina Akushskaya RAO UES, Moscow 4 Alexander Alekseev INCEAD, PhD, France 5 Zhuldyz USAID Project EdNet, CARANA Corporation, Visiting International Professor Bakytzhanova 6 Andrei Balakirev First Czech-Russian Bank, Leading Specialist, Moscow 7 Alexander Barinov University of Rochester, PhD, US 8 Stanislav Bychkov Ministry of Finance, Department for Fiscal Policy, Leading Specialist, Moscow 9 Eugenia Zhabitskaya The "Dubna" International University, Economics Department, Teaching Assistant 10 Mark Volshtein MCDSoft, ERP Consultant, Moscow 11 Aleksey Vylugin N/A 12 Andrei Vykhristyuk London Business School, PhD, UK 13 Dmitry Garanin MetalloInvest, Strategic Development Division, Manager, Moscow 14 Dmitry Gvozdenko Ministry of Finance, Department for External Economic Integration, Leading Specialist; MSU, Post-Graduate studies at Government Management Department, Moscow 15 Alexander Gerko Deutsche Bank; NES, Research Assistant, Moscow 16 Dmitry Gladkov Evraz Holding, Analyst, Moscow 17 Elena Grishina The Insitute for Urban Economics, Expert, Moscow 18 Irina Demidova KPMG, Auditor, Moscow 19 Igor Dodonov NES, Teaching Assistant, Moscow 20 Julia Djakova 'BAT, Market Research & Information, Analyst, Moscow 21 Mikhail Evdokimov Central Bank of Russia, Moscow 22 Tatiana Evstigneyeva Internet Securities Inc., Central Asia Analyst, Moscow 23 Georgy Egorov CEFIR, Economist; NES, Teaching Assistant, Moscow 24 Ilya Ermolaev Deloitte & Touche CIS, Corporate Finance Department, Consultant; MSU, Mech-Math Department, Post-graduate Studies, Moscow 25 Alexander Zhukov PricewaterhouseCoopers, Consultant, Moscow 26 Vadim Zipunnikov Cornell University, Department of Statistical Science, PhD, US 37 Akniet Imambekov Kazkommertsbank, Analyst, Almaty, Kazakhstan 28 Vitaliy Kazakov JP Morgan, Moscow 29 Nuran Kairakbaev "KazMunaiTeniz", Strategic Planning Department, Specialist, Almaty, Kazakhstan 30 Ilya Kanaev Colliers International Moscow, Office Property Consultant, Moscow 31 Ivan Kirichenko Consumer Fincon, Moscow 32 Anna Kozlovskaya Duke University, PhD, US 33 Georgy Kolesnik Moscow 34 Georgy Kolpachev PricewaterhouseCoopers, Consultant, Moscow 35 Tatiana Komarova Northwestern University, Department of Economics, PhD, US 36 Alexander Kopylov Colliers International Moscow, Consultant, Moscow 37 Sergei Korepanov McKinsey&Company, Moscow office, Consultant (Business Analyst) 38 Olga Krakovskaya University of Western Ontario, PhD, US 39 Sergei Kulaev Columbia University, PhD, US 40 Alexander Kurshev London Business School, Finance Department, PhD, UK 41 Alexey Kutepov PricewaterhouseCoopers, Consultant, Moscow 42 Irina Kutsevich Columbia University, PhD, US

NES Annual Report 2003—2004 100 43 Georgy Legotin KPMG Moscow, Tax/Legal Department, Assistant, Moscow 44 Oleg Maitak PricewaterhouseCoopers, Global Risk Management Solutions, Consultant, Moscow 45 Maxim Mironov University of Chicago, Graduate School of Business, PhD, US 46 Elena Morozova Ernst&Young, Moscow 47 Denis Nekipelov Duke University, PhD, US; Institute of Economy in Transition, Research Fellow, Moscow 48 Daria Nekhoroshikh "Oil&Gas Systems", Finance Department, Analyst, Moscow 49 Gulnara Nurullaeva Uzbekistan 50 Maral Ovezova Education Network, Lecturer, Bishkek 51 Gennady Pleskachev Akvion, Analyst, Moscow 52 Gleb Pokatovich Center for Fiscal Policy, Consultant; Institute of Asian and African Studies, MSU, Post-graduate Studies, Moscow 53 Petr Prikhodko Raiffeisen Bank, Research Department Economics & Fixed Income Analyst, Moscow 54 Dmitry Puga "Oil&Gas Systems", Analyst, Moscow 55 Alexey Rezvov Moscow 56 Marina Satina Ernst&Young, Expert, Moscow 57 Alla Sviridova Institute for Open Economy, Department of Foreign Economic Activity, Analyst, Moscow 58 Gulzada Serzhan Education Network, USAID Project, Interpreter, Almaty, Kazakhstan 59 Ksenia Solodnikova PricewaterhouseCoopers Audit Consultant, Moscow 60 Maxim Sousin Corporate Finance Bank, Corporate Finance Division, Analyst, Moscow 61 Alexander Tarasov PennState University, PhD, US 62 Alexander Khilinsky Institute of Radioengineering and Electronics; V-Ratio BCC, Analyst, Moscow 63 Kanat Khusainov Kazakhstan 64 Georgy Tchabakauri London Business School, PhD Accounting, UK 65 Ivan Cherkashin PennState University, PhD, US 66 Aliya Chukmaitova Education Network, Instructor, Dushanbe, Tajikistan; KIMEP, Center for Research and Development, Research Analyst, Almaty, Kazakhstan 67 Eugenia Choupikova Maternity leave, Moscow 68 Dmitry Shakin Institute for Open Economy, Analyst; NES, Teaching Assistant, Moscow 69 Oleg Schetinin CEFIR, Economist; NES, Teaching Assistant, Moscow

NES Annual Report 2003—2004 101 Class of 2004

# Name Placement 1 Anton Anshin Moscow 2 Victor Arshavsky New York University, PhD, US 3 Oleg Bogoslavsky London Business School, PhD in Finance, UK 4 Mikhail Borisov Raiffeisenbank Austria, Analyst, Moscow 5 Anna Burak IBM Business Consulting Services, Consultant, Moscow 6 Andrey Bychkov RAO "UES of Russia", Moscow 7 Alexander Varakin Moscow 8 Andrey Vashevnik NPP "Trading System Administrator of Wholesale Electricity Market Transactions of Unified Energy System", Moscow 9 Roman Golovin RAO "UES of Russia", Specialist, Moscow 10 Igor Gorshunov Deloitte, Corporate Finance Division, Business Analyst, Moscow 11 Natalia Guseva Universitat Pompeu Fabra, PhD, Spain 12 Alexey Debelov Metalloinvest, Manager, Moscow 13 Dzhangir Dzhangirov International Moscow Bank, Treasury, Senior Officer, Moscow 14 Alexey Dmitriev Moscow 15 Alexander Driga CARANA Corporation, Consultant, Moscow 16 Svetlana Egorova KPMG, Audit, Assistant, Moscow 17 Natalia Eremeeva Branan, Analyst, Moscow 18 Dmitry Ermolin Moscow 19 Olga Zagvozdkina Deloitte, Corporate Finance Division, Business Analyst, Moscow 20 Vasily Zaitsev Moscow 21 Galina Zudenkova University Carlos III of Madrid, PhD, Spain 22 Vasily Zuev Ernst&Young, Moscow 23 Asel Ibragimova RAO "UES of Russia", Moscow 24 Oleg Itskhoki Harvard University, PhD, US 25 Natalia Klykova SLB Invest Ltd., Head Expert, Moscow 26 Andrey Kobelev RAO "UES of Russia", Moscow 27 Alexey Komarov Moscow 28 Alexey Kononenko Moscow 29 Sergei Kopylov International Moscow Bank, Risk Management Division, Market Risk Department, Officer; MIPT, Department of General Economics, Teacher-Assistant, Moscow 30 Alla Kryssanova Moscow 31 Victor Kudinov RAO "UES of Russia", Expert, Moscow 32 Tatiana Kuzmenko CEFIR, Moscow 33 Maxim Kukoverov Evraz Holding, Analyst, Moscow 34 Julia Lee Internet Securities Inc., Moscow 35 Boris Livshits CARANA Corporation, Consultant, Moscow 36 Andrey Mavrenkov Economic Expert Group, Consultant, Moscow 37 Dmitry Maniakov N/A 38 Alexey Moskvichev Alfa Bank, Dealer, Moscow 39 Vladislav Nigmatullin SUEK, Moscow 40 Marina Novak PricewaterhouseCoopers, Moscow 41 Oleg Obrezkov Institute for Open Economy, Analyst, Moscow 42 Maria Petrova Harvard University, PhD, US 43 Stanislav Institute of Economy in Transition, Research Fellow, Moscow Ponomarenko 44 Sergei Prikhodko Moscow 45 Andrey Prudnikov International Moscow Bank, Risk Management Division, Market Risk Department, Senior Officer, Moscow

NES Annual Report 2003—2004 102 46 Andrey Ryzhov Moscow 47 Anastasia Sarson Tomsk 48 Alexander Semenov Moscow 49 Ekaterina Sidorova PricewaterhouseCoopers, Moscow 50 Natalia Sizova Duke University, PhD, US 51 Arseniy Skvortsov Moscow 52 Sergei Strelnikov Moscow 53 Vasily Starostenko IPCB.net, Marketing Analyst; RAS, post-graduate studies, Moscow 54 Anton Startsev Moscow 55 Peter Khartchenko PricewaterhouseCoopers, Moscow 56 Igor Kheifets University Carlos III of Madrid, PhD, Spain 57 Andrey Shabalin CEFIR, Moscow 58 Victor Shemanaev RUSAL, Specialist, Moscow 59 Marina Shestakova Wermuth Asset Management GmbH, Analyst; MSU, post-graduate studies, Moscow 60 Ilya Shirokov Moscow 61 Olga Shirokova Econometric Unit VEDI, Head of Department 62 Olga Yasko Moscow

NES Annual Report 2003—2004 103 Appendix 10: NES Directory

Name Phone E-mail Rector Valery Makarov +7-095-129-1011 [email protected] Coordinator, International Advisory Board Gur Ofer +972-2-588-3238 [email protected] (Israel) Treasurer, American Friends of NES Barry W. Ickes +1-814-863-2652 [email protected] (USA) Vice-Rector for Strategic Development Sergei Guriev Ext. 122 [email protected] Vice-Rector Alexander Fridman +7-095-332-4215 [email protected] Deans of Students’ Office Dean of Students Zarema Kassabieva Ext. # 117 [email protected] Academic Registrar and Secretary to the Elena Smirnova Ext. # 118 [email protected] Decanat Tatiana Terekhova Ext. # 102 [email protected] Head of the Academic Committee Victor Polterovich +7-095-332-4392 [email protected] Secretary of the Academic Committee Pavel Katyshev Ext. # 240 [email protected] Financial Director Oxana Budjko Ext. # 104 [email protected] Academic Secretary Valentina Krupina Ext. # 153 [email protected] Admissions Secretary, Olga Kulagina Ext. # 103 [email protected] Preparatory Courses Coordinator Computer and Internet Dept Department Head Sergei Makarov Ext. # 111 [email protected] Network Engineer Anatoly Akinshin Ext. # 110 [email protected] Systems Administrator Sergei Prilutsky Ext. # 211 [email protected] Library Ext. # 152 Head Librarian Karina Ter-Akopian Ext. # 135 [email protected] Librarians Elena Gorodnicheva Ext. # 235 [email protected] Larissa Kryuchkhova Ext. # 235 [email protected] English Instruction Dept Department Head Olesya Marenkina 332-4458 [email protected] Instructor Valeria Salistra Instructor Regina Burdonskaya Instructor Elena Liapunova Research Center Director Stanislav Anatolyev Ext. # 134 [email protected] Coordinator Ludmila Solntseva Ext. # 137 [email protected] Outreach Center Director Oleg Zamulin Ext. # 121 [email protected] Director of Econometrics Anatoly Peresetsky Ext. # 140 [email protected] Coordinator Anya Khmelevskaya Ext. # 150 [email protected] Administrative Assistant Ekaterina Bayan-Ool [email protected] Professors Stanislav Anatolyev Ext. # 134 [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 +7-095-129-1011 [email protected] Victor Polterovich +7-095-332-4392 [email protected] Vladimir Popov Ext. # 116 [email protected] Konstantin Sonin Ext. # 136 [email protected] Kirill Sosunov Ext. # 120 [email protected] Oleg Zamulin Ext. # 121 [email protected] Development Coordinator Olga Lavrentieva Ext. # 113 [email protected] Accounts Department Chief Accountant Julia Kushnarenko Ext. # 138 [email protected] Deputy Accountant Karina Khalipova Ext. # 123 [email protected] IT Accountant Luba Bychkova Ext. # 123 [email protected] Cashier Yulia Gurskaya Ext. # 238 [email protected] Office Manager Raisa Istomina Ext. # 151 [email protected] Technical Assistant Ivan Ivanyuk Ext. # 156 [email protected] Administrative Assistant Nastya Avdieva Ext.# 101 [email protected] Address Nakhimovsky Prospect, 47, Suite 1721, Moscow 117418, Russia Phone (+7-095) 129-3911; 129-3844; 129-3239; 129-1700; 129-4611 Fax (+7-095) 129-3722 E-mail [email protected] Homepage http://www.nes.ru

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