This dissertation identifies bureaucratic discretion -- agents' leeway in making subjective determinations about when and how rules apply -- as a primary source of uncertainty that deters long-term investors by undermining the predictability of firms' regulatory environment. Using a principal-agent framework, I argue that where regulatory bureaucrats exercise greater discretion in interpreting and applying laws, economic actors experience greater uncertainty about how those policies will be put into practice. This unpredictability deters investment by making it difficult for economic actors to predict how the regulatory environment will affect their projects' future returns and costs.
In arguing that bureaucratic discretion can be a source of uncertainty for investors, my argument challenges an existing literature based upon studies within developed democracies that emphasize the economic benefits of insulating state actors, such as bureaucrats, from the pressures of the political arena. Faced with this apparent conflict, I provide a theoretical framework for explaining why bureaucratic discretion might create more uncertainty in some locations than in others. Arguing that bureaucratic discretion should generate greater or lesser uncertainty depending upon the broader institutional context in which it is granted, I call attention to one particular conditioning factor: the level of political competition. I argue that political competition makes policy application more predictable by making politicians more responsive to constituents' concerns about bureaucratic discretion and by spreading the costs of monitoring bureaucrats across non-state actors and supporting institutions. In contrast, economic actors bear the full brunt of regulatory uncertainty in politically-uncompetitive regions -- investors face more unpredictable behavior from discretionary bureaucrats and fewer formal channels for handling disputes that may arise.
I develop this argument by examining private investment across the regions of the Russian Federation. Using a survey of Russian firm managers (Frye 2006), I find that firm managers who perceive bureaucrats to have high discretion are less likely to plan fixed-capital investments for the immediate future, ceteris paribus. In addition, I rely on qualitative evidence from field interviews with Russian firm managers, business association leaders, and policy experts to provide insight into exactly how uncertainty over bureaucrats' application of regulatory laws shapes firms' decisions about where and how to invest. After finding that, on average, discretion corresponds with reduced incentives for firms to invest, I merge the firm-level survey data with regional data on political competition to demonstrate that the negative relationship between discretion and investment is most pronounced in regions of Russia where surrounding institutions limit political competition. Among firms that perceive bureaucrats to have high discretion, those located in politically-uncompetitive regions have a much lower probability of investing than their counterparts in regions with high political competition. Additional analyses bolster confidence that these results do arise via the theory's proposed causal mechanisms; in the final empirical chapter, I find evidence supporting the link between political competition on the one hand and increased government responsiveness and better-behaved bureaucrats on the other.