Firms, public good provision and institutional uncertainty: Evidence from Russia

Enterprises in post-socialist and transition economies often participate in providing infrastructure and social services to the surrounding community which in the Russian legal setting should be local authorities' responsibility. We propose that this bundling of social and infrastructure goods provision with firm's core operations is a fully rational choice in an uncertain institutional environment. A unique survey data suggest that this manifests itself through more reliable infrastructure, stronger employee attachment to the firm and, most interestingly, through better relations with the authorities. Relationship with authorities is a two-way game where the firm gains from the arrangement but on the other faces sanctions if it decided to depart from it. Firm's participation in the arrangement is clearly enhanced by inherited fixed capital assets from the Soviet era.

► We study why firms in transition economies participate in “public goods” provision. ► We argue that this social responsibility can be explained by economic motives: mitigating uncertainty in an institutionally problematic environment. ► Based on survey data we find that uncertainty relates to infrastructure, labor and authority relations. ► We also conclude that the “inheritance” of Soviet physical capital has a notable role.