critical to aligning the incentives of lower level bureaucrats with the promotion of local economic development ( _c.f._ Landry 2008).

# **VI. CONCLUSIONS AND FUTURE RESEARCH**

This paper examined how the investment decisions of firms in different regions of the Russian Federation are shaped by informal practices linked to regulatory enforcement and their consistency. Specifically, we examined how levels of corruption compare to uncertainty about the level of corruption and inconsistency in property rights enforcement. Our hypotheses on levels of corruption were straightforward and we argued that in a highly regulated environment like Russia, high regional average levels of corruption should create conditions which depress investment. That is, corruption enables high levels of regulation to impose heavy transaction costs on firms. Our hypotheses on uncertainty instead stem from the preposition that in imperfect institutional environment – where laws are explicitly being broken or applied selectively – firms must inevitably adjust to these informal rules. Part of this adjustment involves adopting expectations about how these informal practices will be carried out and growing comfortable with making investment decisions influenced by these expectations. As with the more formal regulatory environment, however, firms must also adjust their expected returns on investment based on expectations about shifts in these informal institutions. The greater uncertainty in how informal practices will function, the less likely investment. In this paper, we explored two types of uncertainty that can emerge in imperfect institutional settings: administrative corruption in the absence of centralizing authorities and inconsistency in property rights enforcement as exemplified by violent “raider” attacks abetted by the authorities.

To test our hypotheses, we combined data from several recent sources. Information about firms’ investment decisions (and other firm-level indicators) was extracted from the 2014 RuFIGE survey; data on corruption levels and variation within regions was taken from the 2012 RR BEEPS; and finally, data on raider’s attacks was taken from complaints about raider’s activity filed with the Center “Business Against Corruption”.

Our regression analysis suggests that levels of corruption were not an important factor in investment decision, casting doubt on whether regulatory burdens are as important as uncertainty in firms’ decisionmaking. We did find evidence that uncertainty in the informal practices surrounding regulatory enforcement did matter, however. Most notably, variation in the size of bribes that firms expected to pay, as estimated by respondents, was a significant predictor of investment. The greater the variation, the less likely firms were to invest. From our prospective, this means that firms active in Russia adapted to informal practices that spring up around business-government interactions, so long as they were predictable. Similarly, we find that the greater the number of raider attacks in a region, the less likely investment. Again, this suggests that uncertainty about property rights enforcement weighed heavily on firms. Consequently, we conclude that a significant obstacle to investment decisions at the regional level in Russia stems not from the presence of informal rules _per se_ , but the lack of predictability in their application.

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