variable for each region divided by the regional mean of bribe tax, thus capturing variation across firms and within regions on the extent to which informal payments are made.

Our preferred interpretation of this variable is that it represents heterogeneity in the value of the bribes corrupt officials extract from firms. Alternatively, though, this variable might represent regional heterogeneity in bribes, for example among cities or sectors, rather than variation experienced at the level of the firm. It could also represent price discrimination among public officials, who set prices based on their estimates of firms’ willingness and ability to pay. In any of these cases, however, we argue that the fact that there are different rules in different parts of the region or for different firms is indicative of weaker controls by the regional government. That is, the ability of officials at lower levels to set their own prices goes hand-in-hand with decentralized corruption, which we identified in section 2 as a key source of uncertainty.<sup>13</sup> Even if corruption’s cost is relatively stable in the short term, bureaucratic discretion means that it could change: an important consideration for long-term investment. Consequently, in this paper we argue that a larger coefficient of variation indicates greater decentralization and weaker constraints on corruption, as well as greater regulatory uncertainty.

# **<u>Hypothesis 2.b</u>** <u>:</u> **A higher volume of business attacks on other businesses’ property rights increases regulatory uncertainty, which should decrease investment.**

As noted above, threats to firms’ fundamental property rights constitute the ultimate source of regulatory uncertainty, since this threat emerges from the unwillingness or inability of state actors to properly enforce property rights. Where state officials condone attacks on one group of firms by another, these threats are _prima facia_ sources of uncertainty about when, and for whom, regulations apply. Observationally, the logic of this hypothesis is similar to our predictions about the distance between _de jure_ and _de facto_ law or the predictability of corruption. We argue, however, that inconsistent property rights enforcement fundamentally differs from other forms of regulatory uncertainty in type, as well as degree. Whereas the distance between _de jure_ and _de facto_ law rests on changes in interpretation and variation in bribery is akin to a cost of doing business, inconsistent property rights enforcement presents a more fundamental threat. Where property rights enforcement is inconsistent, firms’ decisions about investment must take into account existential threats. Because firms cannot be sure that the state will protect their assets against extra-legal actions, firms have less incentive to invest.

To measure threats to property rights, in this paper we follow Kazun (2015) and use data compiled by the Center “Business against Corruption” to create a regional level variable that records the “intensity” of “raider” attacks in Russian regions in 2011-2013. BAC is the first organization for the protection of businessmen’s rights in contemporary Russia to collect systematic, detailed data on “raiding” in Russia. To be added to the database, complaints to BAC should meet two basic criteria: (1) the victim of the conflict must be a businessman or a company and (2) the case must involve a raider attack or corruption (i.e. private disputes between businessmen are not subject to review). The BAC Statute envisages different stages of review, including information gathering, a request to the regional office of the business association “Business Russia”, a legal opinion, resolution by the co-chairpersons on referral of the case to the BAC Public Council, and review of the issue at the BAC Public Council (Yakovlev at al, 2014). Incentives for firm owners to use the process are tied to the ability of BAC, upon successful review of an application, to provide official aid and for its co-chairs to attempt to have law enforcements’ actions and decisions revised. The last step in the process involves a public hearing with representatives of the BAC Public Council, leading entrepreneurs, public figures, and representatives of

> 13 We thank Steven Knack and Phillip Keefer for their useful suggestions regarding the interpretation of this variable.

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