Procedural rationality
One such fact of particular importance is the sharp increase in inter enterprise arrears which was not being repaid during the first half of 1992 -- an episode known as "the arrears crisis". As shown in Figure 1, the volume of arrears peaked in the summer of 1992 at some 23 per cent of Russian GNP. The volume of arrears soon subsided to an average of about 5% for the period after 1992. Some experts find this figure to be not out of line with what is a normal amount of overdue trade credit by international standards [1]. A straightforward statistical comparison, however, can be misleading because enterprise arrears in Russia represent a different type of economic relations. In many cases the credit is forced, bears negative real interest and has no fixed repayment period or agreed repayment schedule. To a degree, these peculiar features were conditioned by the shortage of working capital, a drastic fall in demand and other economic consequences of a government's attempt to put an end to the regime of soft budget constraints by lifting price control and removing state subsidies to producers.Arrears in the industrial sectors as shares of GDP 1992-1995
Figure 2: Arrears in the industrial sectors as shares of GDP 1992-1995
Source: Finansy promyshlennosti Rossii, The Monthly Bulletin of the Working Centre on Economic Reform of the Government of the Russian Federation, no.1, June 1995, p.2.
Moss and Kuznetsova [13] argued that the evolution of the arrears crisis provides a clear example of how enterprises cope with situations characterised by significant uncertainty. In the Russian case, enterprises were forced to adopt a survival strategy giving priority to existing, recognized constraints. There was no possibility to maximize anything in the framework of those constraints (Aukutsionek, 1995). Indeed, the scale of the accumulated debt and its persistence suggest that enterprises that debt reduction was not a high priority. For one thing, both the liquid assets of enterprises and their debts have been growing simultaneously [4]. The debt became an element of their survival strategy being instrumental in prolonging the existence of a business environment they were accustomed to, i.e., the one governed by soft budget constraints. Because the accumulated bad debt grew out of proportion on the national scale and became commonplace in all industrial sectors, this important business indicator ceased to be seen as a symptom of poor management efficiency. By the autumn of 1992, 95% of enterprises had bad debts enough to be proclaimed bankrupt on legal grounds [22]. Debt performance had become separated from the business performance of a firm.
The Russian arrears crisis provides us with sufficiently clear stylized facts that we can assess whether the outputs from simulations conform to those facts or not. The stylized facts we want to capture, in addition to the arrears increases, are a high average and widely fluctuating rate of price inflation and volatile but trendless outputs. The point is to capture these stylized facts using a credible and validated specification of the processes agents use to build up their own models of their environments.
Figure 3: : The Basic SDML Type Hierarchy
Procedural rationality - 09 DEC 97
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