Institutions and the Allocation of Talent: Evidence from Russian Regions

Abstract

Strong institutions attract talent to productive activities, whereas weak ones raise the appeal of redistribution and 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 other measures of institutional quality in a manner predicted by our theory. This confirms that investments in human capital reflect the quality of institutions, pointing to a mechanism connecting institutions to economic outcomes.