SOVEREIGN RISK MANAGEMENT: A RATIONALIST EXPLANATION OF PUTIN’S AND TRUMP’S RISK TAKING BEHAVIOR AND ITS CONSEQUENCES

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Abstract

It goes without saying that nowadays corporate leaders should perform their activity within the concept of sustainable development. The United Nations detail on their homepage (sustainabledevelopment.un.org) what this means. But corporate leaders sometimes face headwind from their governments. Therefore it is important to understand the reasons for such governmental decision making. Two prominent cases are the presidents of the USA and Russia.
Firstly, two 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) of president Putin are sufficient to explain Russia’s open position in oil and the bailout of Rosneft. Secondly, actions of president Trump are considered. Again, a risk-acceptant attitude is able to explain his campaign and to conform with his statements. Thirdly, international negotiations over Ukraine between two risk-acceptant presidents are considered. It is proven that the chances for a negotiated settlement have shrunken with the election of Trump and might now even be nil. Fourthly, a tentative outlook on international economics (trade war), finance (regulation) and politics (climate action) is performed.

Keywords: Putin, Trump, Sovereign Risk Management, Conflict in Ukraine, Trade War, Climate Action

Received: 01.06.2017

Accepted: 24.10.2017

How to cite this paper: Lehrbass, F. (2017). Sovereign risk management: A rationalist explanation of Putin’s and Trump’s risk taking behavior and its consequences. Corporate Governance and Sustainability Review, 1(2), 6-16. https://doi.org/10.22495/cgsrv1i2p1