A rationalist explanation of Russian risk-taking

Frank Lehrbass, Valentin Weinhold

Abstract


Three seemingly unrelated topics of Russian politics are investigated. It is shown that under expected utility maximization the assumptions of an unbiased oil forward market and a risk-acceptant attitude (strictly convex utility function) are sufficient to explain Russia’s open position in oil and the bailout of Rosneft. The risk-acceptant attitude of the Russian leader also causes a shrunken bargaining range for the conflict in Ukraine, which can be enlarged by sanctions but not necessarily by the proliferation of weapons. This gives sanctions a clear edge over the proliferation of weapons.

Keywords


Sovereign risk management; commodity risk management; conflict in Ukraine

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DOI: http://dx.doi.org/10.15355/epsj.11.1.5

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