Location: Russia
Putting the “I” Back in Team: The Rise of International Teams in Science
In this policy brief, I discuss the increasing prevalence of international teams in the production of scientific knowledge. I outline several potential factors that may explain these trends and discuss recent evidence from an original survey of coauthors on scientific papers regarding their collaboration behavior. Finally, as a notable example of increased international collaboration, I discuss the increase in scientific collaboration between Russia and the US after the end of the Cold War.
The Increase in Collaboration and Internationalization of Teams
Teams are becoming more prevalent in science. Both the share of papers produced by teams and the number of scientists working on scientific papers has increased in recent decades (Wuchty, Jones and Uzzi, 2007). Economic theory suggests that scientific research is becoming increasingly collaborative since the frontier of scientific knowledge has become more complex and specialized so that more researchers are needed to combine their expertise to make advances (Jones, 2009). Team members are also becoming more geographically dispersed: the share of papers resulting from international collaborations has increased, and within the US, scientists today are more likely to have coauthors located in a different city than before (Freeman, Ganguli and Murciano-Goroff, 2014).
These trends can be seen clearly in the graph below from the National Science Board’s Science and Engineering Indicators 2012. It shows the share of both world papers and US papers from 1990-2010 that are coauthored, coauthored with domestic coauthors only, and coauthored with at least one international coauthor. Collaboration in general and international collaboration have been increasing steadily since 1990 both in the world and in the US. However, for the US, the share of domestic-only collaborations has plateaued, while it is increasing in the rest of the world. In a recent Nature article, Adams (2013) shows that this trend similarly holds for other Western countries (United Kingdom, Germany, France, the Netherlands, Switzerland), while for emerging economies (China, India, South Korea, Brazil, Poland), domestic collaborations are also increasing.
Figure 1. World and US Trends in Scientific Collaboration, 1990-2010
Source: From National Science Board (2012)
Why has Science Become More International?
There are many potential reasons for the recent increases in international collaboration. An important factor has likely been the spread of the scientific workforce and R&D activities throughout the world (Freeman, 2010). The growing number of science and engineering PhDs in developing countries, some of whom are international students and post-docs returning to their home countries has expanded the supply of potential collaborators around the world (Scellato, Franzoni, and Stephan, 2012). Another factor is funding that has shifted scientific production towards international teams, as increased government and industry R&D spending in developing countries and grant policies by the European Union and other countries have supported international cooperation.
The lower cost of travel and communication in recent decades has also reduced the cost of collaborating with people in different locations. For example, Agrawal and Goldfarb (2008) show how the expansion of Bitnet, the precursor to the Internet, led to increased collaboration between institutions within the US. Finally, the location of scientific equipment and materials, such as the CERN Large Hadron Collider, telescopes, or climatological data available only in certain parts of the world, have increased international collaboration, and in some fields, has made international collaboration a necessity.
Survey Evidence on Scientific Collaborations
In a recent paper, my coauthors and I present the results of an original survey we conducted of scientists regarding collaboration (Freeman, Ganguli and Murciano-Goroff, 2014). In August 2012 we conducted a web-based survey of the corresponding authors of scientific papers with at least one US coauthor published in 2004, 2007, and 2010 in the fields of Nanotechnology, Biotechnology, and Particle Physics.
We customized each survey to ask the corresponding author about the collaboration and individual team members. The survey questions asked about how the team formed, how it communicated and interacted during the collaboration, the contribution of each coauthor, types of research funding, and the advantages and disadvantages of working with the team. We received 3,925 responses, so that our response rate was approximately 20%.
The survey also asked the respondent which country each coauthor was “primarily based in during the research and writing” of the article. This gives us a more accurate measure of whether teams are international than can be typically gleaned from publication data, which are based on author affiliations at the time of publication. Defining international teams from author affiliations alone can produce errors if affiliations change between the time the research was undertaken and the time of publication, or because some people have affiliations from more than one country.
Our analysis of the survey data uses the respondents’ information to define US collocated, US non-collocated and international teams. One of our key results is that face-to-face meetings continue to play an indispensible role in collaborations: most collaborators first met while working in the same institution. Teams also reported that while carrying out the research, they communicated often through face-to-face meetings, even with coauthors from distant locations.
Figure 2 below displays how the corresponding author responded about how they first met their team members. It shows that former colleagues play a very important role in the formation of international teams, followed by former students, conferences and institution visits, which equally contribute. The graph also shows the similarity between international teams and US non-collocated teams in how coauthors met. For other survey questions, our analysis also shows similarities between international teams and US non-collocated teams, suggesting that the salient issues are more about geography in general rather than necessarily about national borders.
Figure 2. How Coauthors First Met
Source: From Freeman, Ganguli and Murciano-Goroff (2014)
Another key finding from our survey is that the main reason for most collaborations, whether domestic or international, is to combine the specialized knowledge and skills of coauthors. We also asked the corresponding authors their views of the advantages and challenges of their collaboration. The most often cited advantage for all types of collaborations was “Complementing our knowledge, expertise and capabilities” and “learning from each other”. For the challenges, US non-collocated and international teams tended to agree more that there was “Insufficient time for communication”, “Problems coordinating with team members’ schedules”, and “Insufficient time to use a critical instrument, facility or infrastructure”, but international teams did not report these problems more often than US non-collocated teams. Where international teams differed is that these teams were the most likely to agree that their “research reached a wider audience”.
International Collaboration After the End of the USSR
A small but significant part of the increase in international collaboration since the 1990s can be attributed to the end of the Cold War. In “Russian-American Scientific Collaboration” (Ganguli, 2012), I examine trends in international collaboration by Russian and US scientists since the end of the USSR. Given the nature of the Cold War and restrictions on travel and communication with the West, I show that there was a dramatic increase in the number of publications with at least one Russian and a US coauthor from 1985 to 2005.
In addition to the lifting of travel and communication restrictions, there are several factors that contributed to the surge in collaborations between American and Russian scientists after the end of the USSR. First, at the level of the Russian government, there was a switch to a more open and collaborative approach to science. Part of this effort included establishing international centers for research in Russia aimed at integrating Russia into the global science community. Another important factor facilitating collaborations with Western researchers were foreign grant programs. The large increase in the emigration of Russian scientists in the 1990s to the West also contributed to international collaboration. After emigrating, many Russian scientists maintained close links to their colleagues in Russia, and coauthored papers with their former colleagues, which are counted as internationally coauthored publications.
While many of these factors have aided international cooperation after the end of the USSR, there have also been significant challenges that made cooperation difficult. Some of these challenges in the early 1990s included the political instability, organizational turnover making long-term funding agreements difficult to implement, difficulty transferring funds due to the underdeveloped banking system, high taxation and customs duties, lack of effective intellectual property rights, poor infrastructure, lack of a shared language (both linguistic and cultural), and external regulations (see further discussion in OECD, 1994). However, many of these challenges have now been overcome, leading to the continued increase in international collaboration between Russian and US scientists.
My analysis in Ganguli (2012) shows that the increase in Russian-American collaboration was more pronounced in some fields of science versus others, particularly in Physics. Figure 3 shows that the bulk of the articles published with Russian and American coauthors were Physics articles, with a sharp increase occurring immediately after 1991.
Figure 3. Russia-United States Publications By Field, 1985-2005
Source: From Ganguli (2012)
While some of the differences across the fields can be attributed to the number of scientists active in these fields, there are also other potential contributing factors. For example, it may be that there was greater emigration of scientists from certain fields abroad, and links between emigrants and those who remained in Russia persisted. Graham and Dezhina (2008: 24) suggest that over 50 percent of emigrants were physicists and mathematicians. Another reason may be that international collaboration was more important in some fields due to the knowledge or resources needed to conduct research during the economic crisis of the 1990s. As Wagner Brahmakulam, Peterson, Staheli, and Wong (2002) point out, physics research received significant amounts of US government funding for international collaboration, partly because expensive equipment that is needed and through collaboration, countries could share costs. Also, physicists from many countries often meet and work together at international research centers like CERN. Moreover, in some fields, the US and Russian governments shared priorities in funding international cooperation, like biomedical and health sciences, energy, physics, while there were gaps in some areas where Russia devoted resources and the US did not, like chemistry (Wagner et al. 2002: 24). Graham and Dezhina (2008: 141) also discuss how Western colleagues benefited from working with Russians especially in fields like zoology, botany and the earth sciences, since the Russian colleagues provided access to data from unique regions not available previously.
Support for International Teams?
This policy brief has discussed some reasons for the increase in international scientific collaboration and related empirical evidence, including insights from collaboration after the end of the USSR. The growth in collaboration and the geographic dispersion of teams is likely to continue; the frontier of scientific knowledge will become more complex and specialized, so that an even greater numbers of researchers will be needed to combine their expertise, and they are likely to be spread across increasingly distant locations.
These trends raise many complex issues for policymakers. For some countries, international collaboration may be the only way to sustain the science sector as the frontier of knowledge becomes more complex and resource-intensive. For some, international collaborations may increase the emigration of home-grown talent to wealthier countries. To what extent international collaboration should be supported, and how, will be important policy questions going forward. Typically, funding for international projects has been the main policy lever, and the Russian experience suggests that grant programs did play a critical role in that case. As our survey evidence in Freeman, Ganguli and Murciano-Goroff (2014) suggests, face-to-face meetings are especially important in forming and sustaining international collaborations. Thus, funding mechanisms that include provisions for research stays and face-to-face meetings may be the most effective means for fostering international collaborations.
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References
- Adams, J. (2013). “Collaborations: The Fourth Age of Research.” Nature, 497(7451), 557-560.
- Agrawal A, Goldfarb A (2008). “Restructuring Research: Communication Costs and the
- Democratization of University Innovation,” American Economic Review, 98(4):1578-1590.
- Freeman, Richard B. (2010). “Globalization of Scientific And Engineering Talent: International Mobility of Students, Workers, and Ideas and The World Economy.” Economics Of Innovation And New Technology, Volume 19, issue 5, 201 pp. 393-406.
- Freeman, Richard B., Ina Ganguli and Raviv Murciano-Goroff (2014). “Why and Wherefore of Increased Scientific Collaboration,” NBER Working Paper No. 19819, Issued in January 2014.
- Ganguli, Ina (2012). “Russian-American Scientific Collaboration” in Y.P. Tretyakov (ed), Russian-Аmerican Links: Leaps Forward and Backward in Academic Cooperation. St. Petersburg, Russia: Nestor-Historia, pp. 120-135.
- Graham, Loren and Irina Dezhina (2008). Science in the New Russia: Crisis, Aid, Reform. Bloomington and Indianapolis: Indiana University Press, 2008.
- Jones, Ben (2009). “The Burden of Knowledge and the ‘Death of the Renaissance Man’: Is
- Innovation Getting Harder?” Review of Economic Studies, 76:283-317.
- National Science Board (2012). Science and Engineering Indicators 2012. Arlington VA: National Science Foundation (NSB 12-01).
- National Science Board (2006). Science and Engineering Indicators 2006. Arlington VA: National Science Foundation (NSB 06-01).
- OECD (1994). Science, Technology, and Innovation Policies. Federation of Russia. Paris: Organisation for Economic Co-operation and Development, 1994.
- Scellato, G., Franzoni, C., & Stephan, P. (2012). “Mobile Scientists and International Networks,” NBER Working Paper 18613.
- Wagner, Caroline, Irene Brahmakulam, D.J. Peterson, Linda Staheli, and Anny
- Wong (2002). U.S. Government Funding for Science and Technology Cooperation with Russia.
- Santa Monica, CA: RAND Corporation, 2002.
- Wuchty, S., Jones, B. F., & Uzzi, B. (2007). “The Increasing Dominance Of Teams In Production Of Knowledge.” Science, 316(5827), 1036-1039.
Tajikistan Joining the Customs Union of Russia, Belarus and Kazakhstan: Pros and Cons
Authors: I.A. Densiova, A.M. Malokostov, and N.A. Turdyeva, CEFIR
In this brief we summarize the results obtained in a CEFIR research project on the economic impact of Tajikistan joining the Customs Union of Russia, Belarus and Kazakhstan conducted for the Eurasian Development Bank in 2013 (EBD, 2013). We argue that integration has to be comprehensive to be mutually beneficial: indeed, trade effects are marginal, and the highest stakes are at migration regulation in the CU member-countries and the investment opportunities in Tajikistan.
Integration Formations in the Monetary Sphere: the Possibility and the Necessity for Monetary Integration in the Post-Soviet Region
This policy brief addresses the possibility of monetary integration in the post-Soviet region. It provides a short overview of the literature devoted to the formation and development of the monetary unions, and argues that, based on this literature and real-world experiences, monetary integration can be of substantial value for the CIS states. However, such monetary union is not feasible in the near future due to weak economic integration of the national economies of the CIS countries, significant difference in their development level, and imbalances in allocation of bargaining power between the states. This policy brief suggests that a first step towards monetary integration could be an adoption of a supranational unit of account on the territory of the Customs Union between Russia, Belarus and Kazakhstan.
The modern world has observed formation of a number of economic and monetary integration communities. Their performance varies greatly: some of them are developing successfully, others, on the contrary, are stagnating. Questions concerning the possibility of economic and monetary integration in the post-Soviet space are constantly addressed both by policymakers and by academic economists. Taking into account theoretical concepts and international experience, this brief addresses the possibility and desirability of the integration of the monetary sphere of the post-Soviet region. Based on Luzgina (2013a,b), this brief proposes a form of representation of monetary integration on the early stages of its development. In this case, an early form of monetary integration may be achieved via adoption of a single supranational unit of account on the territory of (a subset of) countries; the national currencies would continue to coexist with the new supranational currency. This approach to integration would allow preserving the independence of economic policy for the involved member states. At the same time, countries would benefit from a reduction in transaction costs and increasing convergence of national economies.
Background: Theoretical Concepts and World Experience of Monetary Integration
Ideally, the monetary union should have the form of an optimum currency area (OCA), a territory of one-currency domination with high level of integration and unification in different economic spheres. Modern economic science provides two main approaches considering the possibility of constructing an optimal currency zone on the territory of several states. The first suggests that optimality should be determined on the basis of implementing a specific group of criteria by countries. Among the main criteria, freedom of goods movement, labor and capital, openness and diversification of the economy, the synchronization inflation rates as well as integration in the financial sector can be mentioned. The second approach is based on a comparison of the benefits and costs in terms of the monetary union formation of the country with the highest economic potential. In practice, when studying the effectiveness of monetary integration, a synthesized approach is used. It includes evaluating by criteria, as well as taking into account costs and benefits that a country accrues in case of entering a particular monetary group. The main benefits of a monetary union include a reduction of transaction costs, trade relations enlargement, improving the discipline in the monetary sphere, and a reduction of the rate of international reserve sufficiency for every country-member. At the same time, there are some negative aspects of deep integration, such as loss of monetary policy independence, economic imbalances in case of weak convergence of national economies, loss of (part of) seigniorage income, and a possible negative public reaction to the adoption of a single currency.
When discussing the concept of monetary integration, it is important to understand the distinction between a monetary union and an optimum currency area. A monetary union is one of the most developed forms of a currency area, which implies a rigid anchor of national currencies to each other with a possible further transformation into the currency of the leading country, or to a single supranational currency (as in the case of the European Union). In this case, a monetary union can be formed of asymmetrical economies. Instead, the optimum currency area requires mandatory implementation of the main convergence criteria, and thereby, more symmetry/alignment among the members. Thus, a monetary union does not necessarily have to be an optimum currency area, while the optimum currency area has every opportunity to be transformed into a full-fledged monetary union [1].
Historically, there have been several examples of monetary union formations. The Italian monetary union (1862-1905), which was formed through the merger of disparate Italian lands, is among them. We can also identify the Scandinavian Monetary Union, which united Norway, Denmark and Sweden (1875-1917). The Austro-Hungarian monetary union existed in the period from 1867 to 1914. Currently, we observe formations of monetary unions in Africa, Latin America and the Arab states.
Despite the implementation of a number of integration projects within the various groups of countries over the past century, only the European states were able to achieve the highest form of monetary integration. It took them more than 50 years to do this, and the integration processes in the economic and monetary fields are continuing with new Member States joining the European Union. However, despite the detailed development plans for the implementation of a monetary union, the Eurozone countries face a number of difficulties and obstacles on the path of economic development. European monetary integration brings not only benefits, but also some costs. For example, the loss of independence of monetary policy creates obstacles in regulations of economic processes.
This discussion suggests that an assessment of the potential formation of a monetary union – that is, of desirability, feasibility and level of monetary integration within a particular group of countries – should be based on relating theoretical concepts and features of the countries in question, as well as a in-depth research of the experience of other currency unions.
Integration Processes in the Post-Soviet Space
At the territory of the former Soviet Union, integration projects have been implemented for more than 20 years. After the collapse of the Soviet Union, such integration formations as the Commonwealth of Independent States and the Eurasian Economic Community were created. Belarus, Kazakhstan and Russia have built a Customs Union (CU) and a Common Economic Space (CES). There is also a possibility of making a transition to the highest form of integration – a monetary union. However, this raises a number of questions: which CIS countries should join a monetary union, when should this be done, and what is the optimal form of monetary union for integrating countries.
Luzgina (2013b) shows that, within the framework of the CIS countries, that there are significant differences in many of the macroeconomic indicators. Countries differ in terms of GDP and the growth rates of investment and prices. For example, Belarus has the highest inflation in the post-Soviet region. The source of growth also differs: for example, a number of countries, such as Azerbaijan, Russia and Kazakhstan, owe a significant part of their economic growth to the availability of natural resources, but this is not universally true within the CIS. Dynamics of population income is also significantly different among the countries. Here, Russia occupies the leading position with its average wage at the beginning of 2012 reaching 780 USD. At the same time, in Tajikistan, the average wage amounts to only 110 USD.
Another concern is that the formation of an economic and monetary union implies free movement of labor and capital. However, at this stage of development, it can lead to some negative consequences. Free movement of labor could involve a massive flow of labor from depressed areas to regions where incomes are much higher. This may create pressure on health and social services in the latter regions. In turn, free movement of capital may cause speculative attacks on the financial markets. At the same time, the CIS countries, except Russia, Kazakhstan and Ukraine, do not have large gold reserves. Therefore, the free movement of capital flows without additional support may cause a crisis within the national financial systems. Out of all the gold reserves of the CIS countries, more than 85% of the total volume is owned by Russia. In the case of an abolition of restrictions on capital flows, countries that are exposed to speculative attacks are likely to ask Russia for help. Such a situation would require Russia to use its own financial resources, which would create an additional pressure on its international reserves.
Table 1. International reserves in the CIS countries, (million US dollars)|
Country |
2008 |
2010 |
2012 |
|
Azerbaijan |
6467,2 |
6409,1 |
11277,3 |
|
Armenia |
1406,8 |
1865,8 |
1799,4 |
|
Belarus |
3063,2 |
5025,4 |
8095 |
|
Kazakhstan |
19883,1 |
28264,7 |
28299,4 |
|
Kirgizstan |
1225,1 |
1720,4 |
2066,7 |
|
Moldova |
1672,4 |
1717,7 |
2515 |
|
Russia |
426278,8 |
479222,3 |
537816,4 |
|
Tajikistan |
163,5 |
403,1 |
630,7 |
|
Ukraine |
31543,3 |
34571,3 |
24552,8 |
Russia is leading among the CIS countries in terms of population and territory, with other countries lagging substantially behind. For example, Belarus owns less than 1% of the total territory of the CIS countries and less than 4% of the population.
Relying on the above quantitative indicators it is natural to expect that in case of a formation of a monetary union with a single emission center, the distribution of votes in the decision-making of the development and implementation of monetary policy is likely to be unequal. The leading role would likely belong to Russia, which has the largest economic potential. However, other countries in this case may be in a less advantageous position as Russia’s decisions may lead to undesirable consequences for the economies of other countries, given the lack of a sufficient degree of synchronization of national economic systems.
Thus, a weak degree of economic integration of the national economies of the CIS countries, different levels of development, as well as the superiority of the economic potential of Russia over the other states gives reason to argue for a non-feasibility of monetary integration within the CIS countries in the short term.
On the other hand, it may be reasonable to consider the possibility of integration in the monetary sphere on the basis of the most economically integrated countries, namely Russia, Belarus and Kazakhstan. These countries have created a Customs Union and are implementing a project of forming a Common Economic Space. There are plans of creating the Eurasian Economic Union. In addition, based on the experience of European countries, it might be easier to start the integration within a limited number of participants, which satisfy the required convergence criteria. Later, more countries may enter the monetary union.
Prospects for Monetary Integration of Belarus, Kazakhstan and Russia
Taking into account the experience of the European Union, we note the need for close trade and technological relations, as well as a market type of economy, and unification of the legislation in the economic sphere. Some of these elements of monetary integration are observed within the CU. After the collapse of the Soviet Union, economies of the former Soviet states switched to paths of market reforms. In addition, the CU countries have rather close trade relations; they have restored the old and created new means of communication. At the same time, there is a weak degree of diversification of exports and imports. A large part of export and import are represented by raw materials.
The second important point of the monetary integration is the comparability by size of the emerging economies. In the framework of the Customs Union, Russia is the only leader. Harmonization of relations between the alliance partners would be easier in the case of smaller countries coordinating their efforts, which would allow them to defend their interests along with the large member-states.
Finally, obligatory condition of monetary integration is the fulfillment of convergence indicators (certain values of macroeconomic indicators) by all association members. In Luzgina (2013b), we compare a range of such indicators, as based on the experience of the European Union. We use indicators such as the inflation rate, public debt, budget deficit, and the dynamics of exchange rates for comparison. The study reveals that the main differences lie in the monetary indicators, namely the rate of inflation and exchange rate. In addition, there are certain differences in the structure of the economy and the share of private ownership in GDP.
Figure 1. Exchange Rate (average for a year), as % of the previous year
Figure 2. Industrial Producer Price Index (average for a year), as % of the previous year
Source: Data of the Interstate Statistical Committee of the Commonwealth of the Independent State
The persistence of significant differences in the values of convergence indicators at the macro level makes a full-fledged monetary union highly unlikely in the short term, even within the framework of the three most economically integrated states. At the same time, it is appropriate to consider the option of monetary integration in its mild form, i.e. in the form of monetary integration on the basis of a single unit of account. A single unit of account is usually calculated on the basis of the basket of national currencies, and is mostly used for international payments and credits.
The attractiveness of monetary integration in the form of monetary union on the basis of a supranational unit of account is motivated; first of all, by the preservation of the economic sovereignty of all countries. Circulation of the unit of account would take place in parallel with national currencies. Member states would retain the possibility of implementation of independent monetary and fiscal policies. Furthermore, the unit of account may fulfill the role of a training tool. The supranational payment unit can be used on the national level. Using this unit of account, legal entities may carry out transactions and individuals may hold their savings. It can also be actively implemented in the inter-state calculations. A part of gold and forex reserves of member countries can be held in the supranational unit of account. Inter-state loans can be issued in this unit as well. This type of monetary union would reveal the feasibility of further deepening of integration in the monetary sphere and determine the timing of the formation of a full-fledged monetary union. In case of serious problems, the dismantling of the currency union will not cause major adverse changes in national economies, unlike in the case of a collapse of a monetary union with a single currency. In addition, the operation of a single unit of account allows for the anticipation of potential problems associated with the functioning of economies under a single monetary system, and a solution before the introduction of a supranational currency.
Last, but not least, this form of integration seems to be a relatively feasible option as the process of convergence on the territory of the CU countries in the monetary sphere has already begun. There is an increased use of national currencies in bilateral trade, harmonization of national legislation is taking place in the monetary sphere, and international agreements in the monetary sphere are ratified. These activities are gradually building a base for the realization of the monetary integration project of the union countries.
Conclusions
Economic and monetary integration allows the countries to get the maximum benefit from mutual cooperation. However, the deepening of the integration process is usually accompanied by certain difficulties. Convergence of economic systems requires transformation of economic institutions, changes in legislation and principles of management, all of which are costly to achieve. The better the preliminary harmonization is performed, the easier the process of adaptation of national economies to function within a particular economic and monetary union will be.
The post-Soviet countries are implementing several projects of economic integration. However, their economies have major differences according to a number of macroeconomic indicators. The greatest degree of convergence is reached only by three CIS states, namely Belarus, Russia and Kazakhstan. Rather high level of economic integration, as well as a continuation of the process of unification and harmonization of national economies allows us to study the feasibility of realizing the lightweight form of a monetary integration based on a single supranational unit of account on the territories of Belarus, Kazakhstan and Russia.
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References
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- Euro – a baby of Mandell? The theory of optimum currency areas: collection of papers: translation from English.- Мoscow.: Delo, 2002.- 368 p.
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[1] Chapligin V.G. Theory and methodology of currency alliance formation/ V.G. Chapligin – St. Petersburg.: Publishing house SPbGUAF, 2003.- 193 p.
Managed Competition in Health Insurance Systems in Central and Eastern Europe
This policy brief summarizes common trends in the development of health care systems in the Czech Republic, Slovakia, and Russia in late 1990s–early 2000s. These countries focused on regulated competition between multiple health insurance companies. However, excessive regulation led to various deficiencies of the model. In particular, improvements in such quality indicators of the three health care systems as infant and under-five mortality are unrelated to the presence of multiple insurers or insurer competition.
A number of transition countries in Central and Eastern Europe and the former Soviet Union introduced health care systems with compulsory enrollment, obligatory insurance contributions unrelated to need and coverage according to a specified package of medical services. This so-called social health insurance (SHI) model (Culyer, 2005) is regarded as a means for achieving universal coverage, stable financial revenues, and consumer equity (Balabanova et al. 2012; Gordeev et al., 2011; Zweifel and Breyer, 2006; Preker et al., 2002). While most transition countries chose to only have a single health insurance provider on the market, the Czech Republic, Slovakia, and Russia allowed competitive (and often private) insurers in the new system. However, the evidence from the three countries shows excessive regulation of health insurers and limited instruments for insurer competition within indebted post-reform health care systems (Naigovzina and Filatov, 2010; Besstremyannaya, 2009; Medved et al., 2005). Consequently, the three countries may have been over-enthusiastic in putting large emphasis on market forces in the reorganization of health care systems in economies with a legacy of central planning (Diamond, 2002).
This brief addresses the results of Besstremyannaya (2010), which assesses the impact of private health insurance companies on the quality of health care system. While various performance measures reflect different goals of national and regional health care systems (Joumard et al., 2010; Propper and Wilson, 2006; OECD, 2004; WHO, 2000), aggregate health outcomes directly related to the quality of health care are commonly infant and under-five mortality (Lawson et al., 2012; Gottret and Schieber, 2006; Wagstaff and Claeson, 2004; Filmer and Pritchett, 1999). Consequently, Besstremyannaya’s (2010) analysis regards mortality indicators as variables reflecting the overall quality of health care system.
The estimations employ data on Russian regions in 2000-2006. The results indicate that regions with only private health insurers have lower infant and under-five mortality. However, given the low degree of competition on the social health insurance market in Russia, we hypothesize that this effect is mostly driven by positive institutional reforms in those regions. Indeed, incorporating the effect of institutional financial environment, we find that the impact of private health insurers becomes insignificant.
Development of a Social Health Insurance Model in the Czech Republic, Slovakia, and Russia
At the beginning of their economic transition, the Czech Republic, Slovakia, and Russia established a model for universal coverage of citizens by mandatory health insurance (Balabanova et al., 2012; Medved et al., 2005; Sheiman, 1991). The revenues of the new SHI system came from a special payroll tax and from government payments for health care provision to the non-working population. The main reason for combining certain features of taxation-based and insurance-based systems was the desire to establish mandatory health insurance as a reliable source of financing in an environment with unstable budgetary revenues (Lawson and Nemec, 2003; Preker et al., 2002; Sheiman, 1994). The insurance systems instituted in the three transition countries correspond to the major SHI principles implemented in Western Europe: contributions by beneficiaries according to their ability to pay; transparency in the flow of funds; and free access to care based on clinical need (Jacobs and Goddard, 2002).
The Czech Republic, Slovakia, and Russia placed emphasis on regulated competition, decreeing that SHI should be offered by multiple private insurance companies with a free choice of the insurer by consumers. Managers of private insurance companies were assumed to perform better than government executives (Lawson and Nemec, 2003; Sinuraya, 2000; Curtis et al., 1995), so an intermediary role for private insurance companies was seen as a key instrument for introducing market incentives and improving the quality of the health care system (Sheiman, 1991).
However, the activity of health insurance companies in the three countries was heavily regulated, since the content of benefit packages, size of subscriber contributions, and the methods of provider reimbursement were decided by government, and tariffs for health care were frequently revised (Lawson et al., 2012; Rokosova et al., 2005; Zaborovskaya et al., 2005; Praznovcova et al., 2003; Hussey and Anderson, 2003). In particular, Russian health care authorities enforced rigid assignments of areas, whose residents were to be served by a particular health insurance company (Twigg, 1999) and imposed informal agreements with health insurance companies to finance providers regardless of the quality and quantity of the health care (Blam and Kovalev, 2006). As a result, the three countries experienced an initial emergence of a large number of health insurance companies, followed by mergers between them, resulting in high market concentration (Sergeeva, 2006; Zaborovskaya et al., 2005; Medved et al., 2005).
In Russia, the Health Insurance Law (1991) specified that until private insurers appeared in a region, the regional SHI fund or its branches could play the role of insurance companies. Therefore, several types of SHI systems emerged in Russian regions in the 1990s and early 2000s: the regional SHI fund might be the only agent on the SHI market; the regional SHI fund might have branches, acting as insurance companies; SHI might be offered exclusively by private insurance companies; or SHI might be offered by both private insurance companies and branches of the regional SHI fund (Figure 1). The variety of SHI systems reflects the fact that many regions opposed market entry by private insurance companies (Twigg, 1999). Indeed, the boards of directors of regional SHI funds usually included regional government officials (Tompson, 2007; Tragakes and Lessof, 2003) who were reluctant to reduce government control over SHI financing sources (Blam and Kovalev, 2006; Twigg, 2001). The controversy with health insurance legislation created a substantial confusion at the regional and the municipal level (Danishevski et al., 2006).
Figure 1. Health insurance agents in Russia in 2000-2006, (number of regions) 
This context suggests that Russian regions provide an interesting study field to address the impact of private health insurance companies on the quality of health care system. In particular, the wide variety of SHI systems across Russian regions, as well as the gradual introduction of the health insurance model in Russia provide a sufficient degree of variation in practices and outcomes to allow for a well-specified empirical analysis.
Data and Results
In our analysis we use data on Russian regional economies between 2000 and 2006 (as based on data availability). Our measures of health outcomes are given by the pooled regional data on infant and under-five mortality. Our key explanatory variable is the presence of only private health insurers in the region. Arguably, the coexistence of public and private health insurance companies does not enable effective functioning of private health insurers owing to their discrimination by the territorial health insurance fund. Therefore, in the empirical estimations we focus on the presence of only private health insurers in the region, regarding it as a measure of effective health insurance model. The analysis also employs a variety of important socio-economic and geographic variables influencing health outcomes (per capita gross regional product (GRP), share of private and public health care expenditure in gross regional product, share of urban population, average temperature in January).
The results of the first set of our empirical estimations demonstrate that the presence of only private health insurers in a region leads to lower infant and under-five mortality. Furthermore, an increase in the share of private health care expenditure in GRP leads to a decrease in both mortality indicators. The result is consistent with numerous findings about the association between personal income and health status in Russia (Balabanova et al., 2012; Sparling, 2008).
Prospective reimbursement of health care providers is associated with a decrease in infant and under-five mortality. The finding suggests the existence of a quasi-insurance mechanism in the Russian SHI market. Operating in an institutional environment where provider reimbursement is based on prospective payment, private insurance companies in effect shift a part of their risk to providers (Glied, 2000; Sheiman, 1997; Chernichovsky et al., 1996).
Table 1. Factors leading to decreased infant and under-five mortality in Russia
Although our analysis shows that the presence of only private health insurers is statistically associated with improvements in infant and under-five mortality, we believe that the influence is indirect. Namely, the overall positive institutional environment in the region may result in both a decrease of mortality indicators and a lower coercion of regional authorities towards the presence of private health insurance companies.
To test this hypothesis, we use financial risk in a region as a measure of institutional environment and incorporate it in the analysis through an instrumental variable approach. (We measure financial risk by an expertly determined rank ordered variable by RA expert rating agency; this variable reflects the balance of the budgets of enterprises and governments in the region, with lower ranks corresponding to smaller risk.)
In line with our hypothesis, the results suggest that the presence of private health insurance companies now becomes insignificant in explaining infant and under-five mortality.
Discussion
The existing literature suggests that the improvement in infant and under-five mortality in the Czech Republic, Slovakia, and Russia can be attributed primarily to an increase of health care spending (Gordeev et al. 2011; Besstremyannaya, 2009; Lawson and Nemec, 2003) rather than being an effect of the social health insurance model with multiple competing insurers. It should be noted that insufficient government payments for the non-working population and a decline of the gross domestic product in the early transition years left SHI systems in the three countries indebted (Naigovzina and Filatov, 2010; Sheiman, 2006; Medved et al., 2005), which undermined the development of the managed competition in the health care provision.
In Russia (and also in the Czech Republic and Slovakia) there is little competition between insurers, and surveys show that the main factors causing consumers to change their health insurance company are change of work or residence, and not dissatisfaction with the insurer (Baranov and Sklyar, 2009). The fact that law suits on defense of SHI patient rights are rarely submitted to courts through health insurers (Federal Mandatory Health Insurance Fund, 2005) may also be evidence of the failure of Russian health insurance companies to win customers on the basis of their competitive strengths.
Summary and Policy Implications
The above findings as well as the other mentioned literature suggest that improvements of infant and under-five mortality in the Czech Republic, Slovakia, and Russia are not associated with the positive role of managed competition in the social health insurance system. In particular, in Russia the decrease in infant and under-five mortality is likely to be related to financial environment, rather than the existence of insurance mechanisms or competition between health insurance companies. One possible explanation of this absence of effect may come from the excessive regulation of the private insurance markets, as well as the insufficient competition between insurers. Importantly, the health insurance reform, implemented in Russia in 2010, both addressed underfinancing (by raising payroll tax rates) and took a step towards fostering provider competition, by allowing private providers to enter the social health insurance market (Besstremyannaya 2013). However, insurance companies are still not endowed with effective instruments for encouraging quality by providers, which may greatly undermine their efficiency.
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References
- Balabanova D, Roberts B, Richardson E, Haerpfer C, McKee V. 2012. Health Care Reform in the Former Soviet Union: Beyond the Transition. Health Services Research 47(2): 840-864.
- Baranov IN, Sklyar TM. 2009. Problemy strakhovoi modeli zdravookhraneniya na primere Moskwy i Sankt-Peterburga (Problems of insurance model in health care: the example of Moscow and Saint Petersburg). In X International Conference on the Problems of Development of Economy and Society, Yasin E.G (ed), Moscow: Higher School of Economics, vol.2.
- Besstremyannaya GE. 2013. Razvitie systemy obyazatelnogo meditsinskogo strakhovaniya v Rossijskoi Federatsii (Development of the Mandatory Health Insurance system in the Russian Federation) Federalizm 3: 201-212
- Besstremyannaya GE. 2010. Essays in Empirical Health Economics. PhD thesis. Keio University (Tokyo).
- Besstremyannaya GE. 2009. Increased public financing and health care outcomes in Russia. Transition Studies Review 16: 723-734.
- Blam I, Kovalev S. 2006. Spontaneous commercialization, inequality and the contradictions of the mandatory medical insurance in transitional Russia. Journal of International Development 18: 407–423.
- Culyer AJ (2005) The Dictionary of Health Economics, Edward Elgar.
- Danishevski K, Balabanova D, McKee M, Atkinson S. 2006. The fragmentary federation: experiences with the decentralized health system in Russia. Health Policy and Planning 21: 183–194.
- Gordeev VS, Pavlova M, Groot W. 2011. Two decades of reforms. Appraisal of the financial reforms in the Russian public healthcare sector. Health Policy 102(2-3): 270-277.
- Hussey P, Anderson GF. 2003. A comparison of single- and multi-payer health insurance systems and options for reform. Health Policy 66: 215-228.
- Jacobs R, Goddard M. 2002. Trade-offs in social health insurance systems. International Jthenal of Social Economics 29(11): 861-875.
- Lawson C, Nemec J, Sagat V. 2012. Health care reforms in the Slovak and Czech Republics 1989-2011: the same or different tracks? Ekonomie a management 1, 19-33.
- Lawson C, Nemec J. 2003. The political economy of Slovak and Czech health policy: 1989-2000. International Political Science Review 24(2): 219-235.
- Medved J, Nemec J, Vitek L. 2005. Social health insurance and its failures in the Czech Republic and Slovakia: the role of the state. Prague Economic Papers 1:64-81.
- Praznovcova L, Suchopar J, Wertheimer AI. 2003. Drug policy in the Czech Republic. Jthenal of Pharmaceutical Finance, Economics and Policy 12(1): 55-75.
- Preker AS, Jakab M, Schneider M. 2002. Health financing reforms in Central and Eastern Europe and the former Soviet Union, in Funding Health Care: Options for Europe, Mossalos E., Dixon A., Figueras J., Kutzin J. (Eds.), European Observatory on Health Care Systems Series: Open University Press, 2002.
- Rokosova M, Hava P, Schreyogg J, Busse R. 2005. Health care systems in transition: Czech Republic. Copenhagen, WHO Regional Office for Europe on behalf of the European Observatory on Health Systems and Policies.
- Sheiman I. 1991. Health care reform in the Russian Federation. Health Policy 19: 45–54.
- Sheiman I. 2006. O tak nazyvaemoi konkurentnoi modeli obyazatelnogo meditsinskogo strahovaniya (On so-called competitive model of mandatory health insurance). Menedzher Zdravoohraneniya 1: 52-58.
- Sheiman I. 1997. From Beveridge to Bismarck: Health Financing in the Russian Federation’. In Innovations in Health Care Financing, Schieber G. (ed.), Discussion Paper 365, 1997, Washington DC: The World Bank.
- Sinuraya T. 2000. Decentralization of the health care system and territorial medical insurance coverage in Russia: friend or foe? European Jthenal of Health Law 7:15–27.
- Sparling AS. 2008. Income, drug, and health: evidence from Russian elderly women. PhD dissertation. University North Carolina at Chapel Hill, UMI Dissertations Publishing.
- Tompson W. 2007. Healthcare reform in Russia: problems and perspectives. Working Papers 538, OECD Economics Department
- Tragakes E, Lessof S. 2003.Russian Federation, Health Care Systems in Transition, The European Observatory, WHO, Europe.
- Twigg J. 1999. Obligatory medical insurance in Russia: the participants’ perspective. Social Science and Medicine 49: 371–382.
- Twigg, JL. 2001. Russian healthcare reform at the regional level: status and impact. Post-Soviet Geography and Economics 42: 202–219.
- Zaborovskaya AS, Chernets VA, Shishkin SV. 2005. Organizatsiya upravleniya i finansirovaniya zdravoohraneniyem v subjektah Rossijskoi Federatsii v 2004 godu (Organization of management and finance of healthcare in Russian regions in 2004)
- Zweifel P, Breyer F. The economics of social health insurance. In The Elgar Companion to Health Economics, Jones A. (ed.), Edward Elgar, 2006.
- Wagstaff A. 2010. Social health insurance reexamined. Health Economics 19: 503–517.
The Customs Union Between Russia, Belarus and Kazakhstan: Some Evidence from the New Tariff Rates and Trade Flows
Author: Arevik Mkrtchyan, European University Institute.
This brief addresses the Customs Union between Russia, Belarus and Kazakhstan that was established in 2010. It argues that the external tariff schedule reflects a compromise between the interests of its members rather than simple expansion of Russian influence on the CU partners, and that the reduction in trade costs due to elimination of internal borders, benefits both the members of the CU and their external trade partners. Moreover, the impact of alleviated non-tariff trade costs on trade flows is strong and significant, while the tariff impact is insignificant for all members.
The European Commission against Gazprom: Should Gas Contracting Arrangement Be Changed?
This policy brief discusses EC’s claim that Gazprom abuses its dominant position. I argue that parts of the claim, like denying Third Party Access, are warranted but others related to the contracts offered by Gazprom to different Member States need not be. In fact, major market players in Europe offer similar contracting forms. In this case, the literature on the competitive effect of long-term supply contracts have stressed that such effect depends on the exact contract arrangement. For example, offering multi-years contract may indeed increase the competition on one part of the market. Having a gas supply contract with a price fully linked to the price of a gas hub may on the other hand reduce the competition among big gas suppliers. Hence, the assessment of Gazprom’s abuse of dominant position should be based on a careful analysis of the many contracting forms that have been agreed between Gazprom and customers in the Member States.
On the 4th of September 2012, the European Commission (EC) opened a proceeding against Gazprom, investigating whether Gazprom has abused its dominant market position in Central and Eastern Europe’s gas supply (see http://europa.eu/rapid/press-release_IP-12-937_en.htm?locale=en). The allegation relies on two different points. First, Gazprom has been accused of denying access to its network pipeline when requested by competing gas supplier. Second, the contractual arrangement offered by Gazprom itself has been under scrutiny. A Gazprom contract usually includes a “destination clause”, that forbids any gas reselling by the buyer. Moreover, the typical Gazprom contract usually specifies a fixed quantity (with a take or pay clause) at a price indexed to the oil price (see Sartori, 2013 for a more extensive description of the EC’s proceeding.)
The objective of this policy brief is to discuss the EC’s claim of Gazprom’s abuse of dominant position. I argue that while the denial of Third Party Access appears as an obvious case of abuse of dominant position, the contractual arrangements offered by Gazprom need not be.
Characterization of Gazprom’s Abuse of Dominant Position
Denying access to Gazprom’s pipelines limits competition and thereby benefits Gazprom as controlling a pipeline constitutes a natural monopoly. This fact has been recognized for a long time with the requirement for a third party access to gas networks in the EU Gas Directive (Directive 2009/73/EC). The first part of the proceeding thus seems to be justified.
The EC proceeding also found that the contractual arrangements offered by Gazprom reflected an abuse of dominant position. The claim is that Gazprom locked in its customers. When signing a contract with Gazprom, buyers agreed on a fixed quantity irrespective of their “real” consumption (“take or pay” clause) and are not allowed to resale ex post excess quantity on the market (“destination clause”). Given that gas contracts usually are signed for many years, the lock-in period can be long. Moreover, the price of the gas contract is usually pegged to the oil price so that it reflects current supply and demand conditions for oil rather than for gas. One implication is that the contracted gas prices did not reflect the severe drop in the gas market price in 2008 (BP report, 2012).
The EC’s allegation that Gazprom has abused its dominant position is thus based not only on the fact that Gazprom is denying third party access to its pipelines but also on the long term contracts with a fixed quantity and an oil indexed price.
Next, I argue that the second part of the claim is questionable. Forcing Gazprom to propose contracts with flexible quantities, shorter contract lengths and no indexation to the oil price may not limit the abuse of Gazprom’s dominance. Depending on the exact contract arrangement (quantity, duration, and indexation), the abuse of dominant position could be more or less severe.
Contract Arrangement and Market Competition
It is important to stress that the major gas suppliers of Europe, like Sonatrach or Statoil, offer similar contract arrangements. So, are long-term supply contract arrangements pro or anticompetitive given that all major competitors use such contracts? The answer to this question typically depends on the contractual details. In what follows, I discuss briefly when contracts provided by major market players could alleviate the abuse of dominant position.
It has been shown that firms may have less incentive to exercise market power, if they have large contract positions (e.g. Allaz and Vila, 1993). Intuitively, a firm obtains a leadership position by selling contracts before going on the spot market. Motivated by this opportunity, all players participate in the contract market and as a consequence compete more aggressively overall. Offering long-term supply contracts may therefore enhance competition among gas suppliers.
The competitive effect of long-term supply contract may not always be present when suppliers and buyers repeatedly sign contracts. In a dynamic setup, it has been shown that allowing contracting for major players may reduce competition. Contracting could be used to reduce demand elasticity by increasing spot market exposure (e.g. Mahenc and Salanié, 2004). Contracting could also increase the likelihood and severity of collusion (Ferreira, 2003; Le Coq, 2004; Liski and Montero, 2006). The reason is that a collusive agreement is easier to sustain in a dynamic setup if firms offer contracts. A collusive strategy is sustainable provided that firms have no incentives to cheat, i.e. the repeated collusive profits exceed the immediate profit from the deviation and the price war following defection. The short run gains from cheating are reduced if all firms have signed contracts as the defecting firm will not capture the demand already covered by competitors’ contract sales. Compared to the case with no contracts, this reduces the gains from defection without changing the punishment path, and therefore makes collusion easier to sustain. In a dynamic setup, offering contracts may therefore increase the likelihood of collusion.
Green and Le Coq (2010) have shown, however, that the anti-competitive effect of contracts depends on their duration. The longer the contracts last, the more difficult it is to sustain collusion. Intuitively, a deviation from the collusive agreement will trigger punishments, which depend on the contract duration. The longer the contract lasts, the smaller would be the punishment profit, which would increase the incentive to deviate.
The contract price’s format also matters when estimating the anti-competitive effect of any contract arrangement. The stronger the degree of indexation to the spot price the easier it is to sustain collusion (Le Coq, 2013). In particular, if a contract price would be fully indexed on a gas spot (hub) price, irrespective of the contract’s duration, it is always easier to collude. The intuition underlying this result is two-fold.
First, given that the contracted quantities are not traded in the spot market, contracts reduce the size of the market that a deviator can serve when undercutting the rival’s price. Second, given that the contract’s price equals the spot price, the contract does not affect profit levels in the punishment phase. Consequently, profits in the punishment phase can be driven down to zero just as in the case when there is no contract market. Moreover, contracts with others forms of indexation have the same qualitative effects, provided that the indexation to the spot price is sufficiently strong. Interestingly, with full indexation, the anti-competitive effect of supply contract holds even if contracted quantities are flexible (can be renegotiated).
To conclude, changing the contract arrangement between Gazprom and European customers may not alleviate the abuse of Gazprom’s dominant position. A detailed analysis of the (many) contract arrangements offered by Gazprom needs to be conduct first to be able to make such claim.
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References
- Allaz, B., Vila, J.-L., 1993. Cournot competition, forward markets and efficiency. Journal of Economic Theory 59 (1), 1–16.
- BP Statistical Review of World Energy June 2012
- Directive 2009/73/EC of the European Parliament and of the Council concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC, OJ L 211.
- Ferreira, J.L., 2003. Strategic interaction between futures and spot markets. Journal of Economic Theory 108 (1), 141–151.
- Liski, M., Montero, J.-P., 2006. Forward trading and collusion in oligopoly. Journal of Economic Theory 131 (1), 212–230.
- Le Coq, C., 2004. Long-term supply contracts and collusion in the electricity market. Stockholm, SSE/EFI Working Paper Series in Economics and Finance 552.
- Le Coq, C., 2013 Supply Contracts and Competition on the Spot: How indexation and duration matter? Mimeo.
- Le Coq, C., R. Green, 2010 The Length of Contracts and Collusion International Journal of Industrial Organization 28(1), 21-29, 2010.
- Mahenc, P., Salanié, F., 2004. Softening competition through forward trading. Journal of Economic Theory 116 (2), 282–293.
- Sartori N., 2013. The European Commission vs. Gazprom: An Issue of Fair Competition or a Foreign Policy Quarrel? IAI working paper 13103
Alcohol Consumption and Mortality
Many studies have shown that alcohol consumption is the main cause of death among working age Russian males and, in particular, among those younger than 40 (see Bhattacharya et al., 2013, Brainerd and Cutler, 2005, Denisova, 2010, Leon et al., 2007, Triesman, 2010, Yakovlev, 2013a, 2013b). A noteworthy example that illustrates this point is the decrease in male mortality rates during the Gorbachev anti-alcohol campaign. During five years of this campaign, which restricted sales and increased the price of alcohol, alcohol consumption fell by 40%. During the same period, male mortality rates fell by 25%. Furthermore, this trend reversed at end of the Gorbachev anti-alcohol campaign with the liberalization of the alcohol market and surge in mortality by the end of 1990s and beginning of 2000s (see Triesman, 2010 and Bhattacharya et al., 2013). These trends appear to be consistent with the idea that access to more alcohol is related to higher rates of male mortality.
Despite recent regulatory measures imposed by the Russian government to end this trend, male live expectancy remains low: it is 4 years below world average and below poor countries, such as North Korea or Yemen.
The economic literature emphasizes several features of alcohol consumption that are important for policy makers. First, alcohol, and especially hard alcohol, is a relatively elastic good. This implies that an increase in the price of alcohol as well as other costs (such as time costs) will result in an even larger drop in alcohol consumption relative to the price drop. If they are linked, this should also be associated with a fall in mortality rates (see Cook and Moore, 2000, Leung and Phelps, 1993).
Second, alcohol is a “social” good (Kremer and Levy, 2008, Krauth, 2005, Yakovlev, 2013a). People like to drink with others. Drinking often takes place in groups of peers, and peer decisions on whether to drink or not affect personal decisions related to drinking. Peer effects are especially strong among younger generations. The presence of peer effects implies the presence of a so-called social multiplier: the effect of government policy (for example, alcohol taxation) will be higher in the presence of peer effects. A policy such as a rise in taxation will not only affect an individual by encouraging them to consume less, but also have a spillover effect on his or her peers resulting in them drinking less as well. This should, overall, generate a larger decrease in alcohol consumption than would be the case through the effect on individuals alone (i.e. if people choose to drink based purely on their own preferences without paying attention to their peers or social groups). As it was shown by Yakovlev (2013a), for males below age 30, the peer effect increases the price elasticity of alcohol consumption by 50%. This means that a government policy, such as an increased alcohol tax, should generate a 50% higher decrease in alcohol consumption for the younger generation. Furthermore, this should also lead to an even larger reduction of mortality rates.
A third aspect of alcohol consumption is that alcohol is a habit-forming good (see Cook and Moore, 2000). The consumption of alcohol, as well as consumption of certain types of alcoholic beverages, tends to form habits related to these goods. These habits are strong and they potentially affect personal consumption even decades later. If a person starts to consume alcohol in their youth, this means that they are likely to continue and be more likely to consume alcohol in later years simply because they have a past history of consuming this product.
These three aspects have several policy implications. First, due to habits and peer effects, government policies aiming to reduce mortality rates by decreasing alcohol consumption will potentially have greater impact on younger generations than on older. This is simply because peer effects tend to be stronger among youths, but also because decreased consumption earlier in life will reduce the chances of consuming alcohol later in life and have, as a consequence, even longer term effects on society’s level of alcohol consumption. Thus, policy makers should pay special attention on younger groups of the population, in particular, policy tools such as the restriction of alcohol sales near schools and other educational facilities if the goal is to reduce the negative impact of alcohol on life expectancy. Second, the effect of this policy could be long lasting: once habits form, patterns of consumption could be affected for many years afterwards. In other words, the full effects of a policy aiming to curb alcohol consumption to improve mortality rates will not be immediately observed. Instead, part of the change in the future would be attributed to past changes in alcohol consumption.
Another aspect of alcohol consumption of importance for mortality rates concerns the habits individuals form regarding what types of alcoholic beverages, such as beer or vodka (see Yakovlev, 2013b), they drink. This has policy implications since not all beverages have the same degree of harm. If an individual consumes beer during his or her teens, she or he would likely prefer beer ten (or even more) years later. If she or he starts with vodka, she or he will likely prefer vodka. Moreover, Yakovlev (2013b) shows that beer and vodka are substitutes: an increase in the price of beer will decrease the consumption of beer and increase the consumption of vodka, or vice versa. Because beer is a less harmful alcoholic beverage than vodka, an increase in the relative price of vodka with respect to beer should improve public health to the extent that people switch to consuming a less harmful form. In addition, this effect should be stronger in the long run with individuals forming habits toward beer consumption at the expense of the more harmful vodka and, overall, we should expect morality rates to be improved as a result, although not by as much as in the case when people stop or do not consume alcohol.
There are several other features of alcohol consumption worth mentioning but which will not be addressed in detail in this brief. Alcohol consumption is correlated with not only personal health and well-being, but also with the well-being of others: it is associated with negative externalities such as crime, violence, and traffic accidents etc. Alcohol consumption also exhibits several “non-fully-rational” features such as time inconsistency or myopia (Gruber and Koszegi, 2001). In this case, a restriction on the times when alcohol sales are permitted could be a possible effective policy tool to reduce heavy drinking. This happens because people tend to underestimate how much they would like to drink in the future or want to drink less in the future than they expect, and thus prefer not to store alcohol at home. Finally, alcohol consumption is a substitute for other activities, such as sports (Tsai, 2013). Promoting these activities could encourage people to switch from alcohol consumption to healthier behavior, and, conversely, reducing alcohol consumption could foster greater levels of participation in sports activities.
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Literature
- Bhattacharya, Jay, Christina Gathmann, and Grant Miller. 2013. “The Gorbachev Anti-Alcohol Campaign and Russia’s Mortality Crisis” AEJ: Economic Policy 2012
- Cook, Philip J. and Moore, Michael J. 2000. “Alcohol”, Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed. ), Handbook of Health Economics, edition 1, volume 1, chapter 3.
- Brainerd, Elizabeth and David Cutler, 2005, “Autopsy on an Empire: Understanding Mortality in Russia and the Former Soviet Union.” Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 107-130,Winter.
- Denisova, Irina. 2010. “Adult mortality in Russia: a microanalysis”, Economics of Transition, Vol. 18(2), 2010, 333-363.
- Gruber, Jonathan and Botond K˝oszegi. 2001. “Is Addiction ‘Rational?’ Theory and Evidence.” Quarterly Journal of Economics (2001), 116(4), pp. 1261-1305.
- Kremer, Michael, and Dan Levy. 2008. “Peer Effects and Alcohol Use among College Students.” Journal of Economic Perspectives, 22(3): 189–206.
- Krauth, Brian. 2005. “Peer effects and selection effects on smoking among Canadian youth.” Canadian Journal of Economics/Revue canadienne d’économique, Volume 38, Issue 3, pages 735–757, August 2005.
- Leon, David, Lyudmila Saburova, Susannah Tomkins, Evgueny Andreev, Nikolay Kiryanov, Martin McKee, and Vladimir M Shkolnikov. 2007. “Hazardous alcohol drinking and premature mortality”
- Leung S. F., and Phelps, C. E. “My kingdom for a drink…?” A review of estimates of the price sensitivity of demand for alcoholic beverages. In: Hilton, M. E. and Bloss, G., eds. Economics and the Prevention of Alcohol-Related Problems. NIAAA Research Monograph No. 25, NIH Pub. No. 93–3513. Bethesda, MD: National Institute on Alcohol Abuse and Alcoholism, 1993. pp. 1–32.
- Tsai, 2013, “Peer effects in physical training.” NES, mimeo
- Yakovlev, Evgeny 2013, “Peers and Alcohol: Evidence from Russia”, NES/CEFIR working paper
- Yakovlev, Evgeny 2013, “USSR Babies: Who drinks vodka in Russia”, NES/CEFIR working paper
Fact or Fiction? The Reversal of the Gender Education Gap Across the World and the Former Soviet Union
In this policy brief, I discuss the reversal of the gender education gap in many countries around the world – a fact that is still not widely known, although is increasingly gaining attention. I describe recent studies that have documented this fact for both developed and developing countries and have provided evidence on the trend. As there has not been much analysis of the education gap in the former Soviet Union countries, I present some measures of the education gap in the USSR and FSU countries, and compare them to other countries around the world. Finally, I discuss the potential causes of the reversal identified in the literature and how the reversal of the gap is related to other gender disparities.
Optimal Economic Policy and Oil Price Shocks in Russia
Significant oil price fluctuations are an important factor influencing real economic variables, especially in the countries with large dependency on export of natural resources. Under such fluctuations, it is natural to consider the possibility of economic policy to fine tune the real economy, achieve inflation stability, and to weaken the negative influence of oil price shocks. In terms of monetary policy, authorities realize the existence of many channels through which oil market is related to the real sectors and inflation. The Central Bank of Russia should analyze the necessity to react to oil prices and to change the effect of them on the real economic variables.
The most typical way of reaction to oil prices in the Russian Federation is accumulation of reserves at the Reserve Fund. The Stabilization Fund (was later in 2008 separated into the Reserve Fund and the National Welfare Fund) was created in 2004 based on the initiative of Mr. Alexey Kudrin, who was a Minister of Finance at the time. The idea of the fund is to direct the revenue from oil export to the budget, but only when the price of oil does not exceed a pre-specified level, and the residual income should be accumulated in the fund.
In addition, the Central Bank of Russia may respond with its refinancing rate to the changes of the oil price via an augmented oil price Taylor rule or indirectly without inclusion of a commodity quota into the monetary policy rule.
We consider whether the Central Bank of Russia should formally establish the policy of responding to the changes of the oil price. The key evaluation criterion for selecting the optimal response is the minimization of inflation and GDP fluctuations.
Taking into account the results of an applied Dynamic Stochastic General Equilibrium model estimated for the Russian economy, we suggest that the Central Bank, optimally, should include the oil price in its interest rate Taylor monetary rule. That is, it should react to oil price quotas but only in the case of stabilization fund absence. This suggested optimal monetary policy implies a positive direct response to oil price shocks; a 1% oil price increase (decrease) should trigger CBR to raise (decrease) the refinancing rate by 0.1%. In the case of stabilization fund presence, there is no need to respond to changes in the oil price since the former stabilizes the situation when the oil price fluctuates too much.
The main potential limitation of this study is the problem of model quality against the real data. In addition, other monetary policy instruments may be tested against the reaction to changes in the oil price.
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Transportation Infrastructure and Labor Market Integration: the Moscow Oblast Case
The model of city organization proposed by von Thünen in the beginning of the XIXth century, and then formalized by Alonso followed by Muth and Mills (see Ner (1986)), is one of the most “successful” models in economics in terms of practical applications. The model explains why the gradient of population density and land rents decline from the city center towards the periphery. In fact, almost all modern cities fit this pattern, i.e. the model invented two centuries ago is capable of describing today’s spatial structure of cities. Even though von Thünen’s original idea of a city center as a single “marketplace” is no longer realistic, a multitude of factors beyond this make central locations nevertheless attractive. If firms are located near each other, they can take advantage of a common labor pool, easier access to consumers and suppliers, shared infrastructure, and knowledge spillovers, to name but a few advantages. Access to the center brings tangible economic benefits to both labor and capital and these benefits exceed possible losses due to increased competition, and so the von Thünen mechanism still works today, albeit through different channels.
In cities, there are generally two types of spatial organizations possible with respect to household income. If the advantages of amenities in a city center are not very strong, rich people tend to choose to locate in suburbs in order to consume higher quality housing. Such patterns are typical in US cities. If the advantages of a center are strong, the rich choose to live in the center. (Brueckner et al. (1999)) Due to historical circumstances, such patterns are typical of European or Russian cities. In these cases we observe a declining gradient of income; the further we move from the center, the further residents’ average income falls.
There are two forces at work shaping this declining gradient of wage. First, poor people sort themselves into suburban locations. Second, residents of the suburbs who want to take advantage of the labor market in the center face a barrier involving commuting costs. Many of them forgo high-wage opportunities that require tedious everyday commuting and therefore remain poor as a consequence.
An apparent policy solution to reduce income inequality would be to reduce transportation costs. The higher transportation costs are, the steeper the gradient of income. Fast and convenient transportation promotes the integration of local labor markets, gives the residents of the suburbs more, and often better, job opportunities, and works toward equalization of income across the agglomeration. Moreover, as transportation costs decline, the geographic area of agglomeration grows, which opens new opportunities for real estate development as well as new possibilities for rural residents to commute and participate in large labor market.
We conducted a study at CEFIR (Mikhailova et al. (2012)) comparing the spatial patterns of average wages in the Moscow agglomeration with several agglomerations in Western Europe. We considered municipal-level data for Moscow Oblast and for 25 agglomerations in Sweden, Germany, and Netherlands. In the sample of municipalities that are served by suburban train system, we estimated how average wages in a given municipality respond to different lengths of travel times to the city center.
Figure 1 shows the estimated wage-travel time relationship for Moscow Oblast and Figure 2 for the selected European cities.
Figure 1. Average Wage and Travel Time to the City Center, Moscow 
The residents of the Moscow agglomeration are at a clear disadvantage according to the data shown above. Residents of Moscow Oblast, even those who live in relative proximity to the city, loose drastically in terms of average wage. Doubling the travel time (say, from 20 min to 40 min, which is the range most commuters fit into) results in a 25% drop in the average wage for residents in Moscow Oblast compared to only a 5% drop in Europe. The wage in a municipality, from which it would take 90 minutes to travel to the city center, is almost half of the average wage inside Moscow’s Ring Road whereas in Europe 90 minutes translates into a 10% loss of in average wages.
A 90 minutes travel time could be considered as a realistic limit to the size of an agglomeration. This is roughly the maximum distance over which a typical working commuter would be willing to travel each day in each direction. A 90 minute commute in Europe represents approximately a 100 kilometer distance. In Moscow Oblast, however, it is only 63 km. So, Moscow Oblast loses in the effective “reach” of suburban transportation: people who live further than roughly 60 km from the center cannot practically commute.
Even for the same commuting time, the difference in wages between center and suburban municipality is much smaller in Europe (see Figures 1 and 2). This means that a commute for the same time length (in terms of railroad transport) presents a larger barrier for the residents of Moscow Oblast. This is obviously an over simplification of the situation since taking into account only commuting times as the measure of costs we ignore many other critical factors such as price (relative to income), the convenience of schedule and travel comfort, alternative modes of transportation, etc. Suburban trains in Moscow Oblast run infrequently, they are overcrowded, and alternative transportation modes (car or bus) face considerable delays due to road congestion. All of these additional factors serve to reduce the labor market opportunities of the Moscow Oblast residents and make wage inequality even deeper.
Figure 3 presents wage-distance gradients for the Moscow agglomeration under different scenarios using a hypothetical “European” gradient to show what could be the case if changes were made to reduce barriers to transportation bringing the Moscow agglomeration in line with European standards. The graphs end at a distance that corresponds to a typical 90-minute commuting time under various scenarios ranging from the status quo to the best case, where Moscow Oblast replicates European standards. The red curve represents the upper bound estimate of the possible effect of investments to improve the transportation infrastructure to bring Moscow regional transportation network in line with the quality of a typical European agglomeration. The residents of Moscow region could gain up to 24% more in terms of current average wages if this were to take place. The purple curve, however, presents a more modest scenario assuming that the structure of Moscow regional transportation network remains the same, but the travel time were to be cut by 20%. Even in this case, the gains to Moscow Oblast residents are about 3% of wages which is very significant economically for an area populated by 5.5 million people.
Figure 3. Wage Distance Gradient 
Further, it is important to note that to take advantage of labor market integration residents do not necessarily all have to commute to work to the center. The mere possibility of commuting creates arbitrage opportunities in the labor market and puts upward pressure on wages. As a result, it is important for economic policy to constantly improve transportation infrastructure even if the private benefits of increased usage are modest.
In the end, our analysis did not touch on the other benefits from transportation infrastructure. Apart from labor market integration, improvements in transportation infrastructure promote real estate development (Baum-Snow (2007), Garcia-López(2012)) and expand the market for goods and services. We leave these questions for further research.
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References
- Baum-Snow, Nathaniel (2007) “Did Highways Cause Suburbanization?” The Quarterly Journal of Economics 122(2): 775-805
- Brueckner, Jan K., Jacques-François Thisse, and Yves Zenou (1999) “Why is central Paris rich and downtown Detroit poor?: An amenity-based theory.” European Economic Review 43.1: 91-107.
- Garcia-López, Miquel-Àngel (2012) “Urban spatial structure, suburbanization and transportation in Barcelona”, Journal of Urban Economics, Volume 72, Issues 2–3, September–November, Pages 176-190
- Mikhailova, T, V. Rudakov and N. Zhuravlyova (2012) “Economic effects from the Moscow Oblast suburban railroad infrastructure development” («Экономические эффекты от развития инфраструктуры пригородного железнодорожного сообщения в Московской области»), project report, CEFIR.
- Ner, J. B. (1986). The structure of urban equilibria: A unified treatment of the Muth-Mills model. Handbook of regional and urban economics: Urban economics, 2, 821.