Institutions, abilities, and the allocation of talent: Evidence from Russian regions

• Published in: Journal of Comparative Economics 2024-03, Vol.52 (1), p.271-296
• Main Authors: Alexeev, Michael, Natkhov, Timur, Polishchuk, Leonid
• Format: Article
• Language: English
• Subjects: Allocation of talent; Human capital; Institutions; Rent seeking
• ISSN: 0147-5967; 1095-7227
• DOI: 10.1016/j.jce.2023.11.003

Strong institutions attract talent to productive activities, whereas weak ones raise the appeal of rent seeking. We propose a theory that describes the impact of institutions on occupational choices over a range of abilities, and predicts that the sensitivity of such choices to the quality of institutions rises in talent when the latter increases from low to intermediate levels, and declines thereafter. To test these predictions empirically, we use a unique micro data set describing the choices of fields of studies by newly enrolled university students in Russian regions in 2011–2014. We show that the popularity of sciences and engineering, on one hand, and law and public administration, on the other, are linked to the quality of regional investment climate and another measure of institutional quality in a manner predicted by our theory. •Our theory implies nonlinear impact of institutions on occupational choices.•Impact of institutions first rises in talent and then declines for highest abilities.•We test the theory using fields of enrollment for students in Russia’s regions•We focus on enrollments in STEM and law and public administration.•Main results and robustness checks strongly support our theory.