Publications

2005
Mullainathan, Sendhil, and Andrei Shleifer. 2005. “The Market for News.” American Economic Review 95 (1): 1031-1053. Abstract

We investigate the market for news under two assumptions: that readers hold beliefs which they like to see confirmed, and that newspapers can slant stories toward these beliefs. We show that, on the topics where readers share common beliefs, one should not expect accuracy even from competitive media: competition results in lower prices, but common slanting toward reader biases. On topics where reader beliefs diverge (such as politically divisive issues), however, newspapers segment the market and slant toward extreme positions. Yet in the aggregate, a reader with access to all news sources could get an unbiased perspective. Generally speaking, reader heterogeneity is more important for accuracy in media than competition per se. (JEL D23, L82)

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Mulligan, Casey, and Andrei Shleifer. 2005. “Conscription as Regulation.” American Law and Economics Review 7 (1): 85-111.
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Glaeser, Edward L, and Andrei Shleifer. 2005. “The Curley Effect.” Journal of Law, Economics, and Organization 21 (1): 1-19. Abstract

James Michael Curley, a four-time mayor of Boston, used wasteful redistribution to his poor Irish constituents and incendiary rhetoric to encourage richer citizens to emigrate from Boston, thereby shaping the electorate in his favor. As a consequence, Boston stagnated, but Curley kept winning elections. We present a model of using redistributive politics to shape the electorate, and show that this model yields a number of predictions opposite from the more standard frameworks of political competition, yet consistent with empirical evidence.

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Barberis, Nicholas, Andrei Shleifer, and Jeffrey Wurgler. 2005. “Comovement.” Journal of Financial Economics 75 (2): 283-317. Abstract

Building on Vijh (Rev. Financial Stud. 7 (1994)), we use additions to the S&P 500 to distinguish two views of return comovement: the traditional view, which attributes it to comovement in news about fundamental value, and an alternative view, in which frictions or sentiment delink it from fundamentals. After inclusion, a stock’s beta with the S&P goes up. In bivariate regressions which control for the return of non-S&P stocks, the increase in S&P beta is even larger. These results are generally stronger in more recent data. Our findings cannot easily be explained by the fundamentals-based view and provide new evidence in support of the alternative friction- or sentiment-based view.
Copyright 2004 Elsevier B.V. All rights reserved.

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A Normal Country: Russia after Communism
Shleifer, Andrei. 2005. A Normal Country: Russia after Communism. Harvard University Press. Publisher's Version
2004
Botero, Juan, Simeon Djankov, Rafael LaPorta, Florencio López-de-Silanes, and Andrei Shleifer. 2004. “The Regulation of Labor.” Quarterly Journal of Economics 119 (4): 1339-1382. Abstract

We investigate the regulation of labor markets through employment, collective relations, and social security laws in 85 countries. We find that the political power of the left is associated with more stringent labor regulations and more generous social security systems, and that socialist, French, and Scandinavian legal origin countries have sharply higher levels of labor regulation than do common law countries. However, the effects of legal origins are larger, and explain more of the variation in regulations, than those of politics. Heavier regulation of labor is associated with lower labor force participation and higher unemployment, especially of the young. These results are most naturally consistent with legal theories, according to which countries have pervasive regulatory styles inherited from the transplantation of legal systems.

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Glaeser, Edward L, Rafael LaPorta, Florencio López-de-Silanes, and Andrei Shleifer. 2004. “Do Institutions Cause Growth?” Journal of Economic Growth 9 (3): 271-303.
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Treisman, Daniel, and Andrei Shleifer. 2004. “A Normal Country.” Foreign Affairs 83 (2): 20-38.
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Shleifer, Andrei. 2004. “Does Competition Destroy Ethical Behavior?” American Economic Review Papers and Proceedings 94 (2): 414-418.
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Murphy, Kevin M, and Andrei Shleifer. 2004. “Persuasion in Politics.” American Economic Review Papers and Proceedings 94 (2): 435-439. Abstract

Recent research on social psychology and public opinion identifies a number of empirical regularities on how people form beliefs in the political and social spheres. First, beliefs are flexible and can be relatively easily influenced, particularly in areas where people do not have significant personal involvement (Doris Graber, 1984; John Zaller, 1992). Second, social influence shapes decisions: people are often persuaded by those they personally interact with (Mark Grasnovetter, 1973; Robert Cialdini, 1984). Such influence from friends, co-workers, and other “discussants” significantly affects the decisions on whether and how to vote (Paul Beck et al., 2002). Third, in the political arena, voter awareness of specific issues is quite low, and hence susceptibility to persuasion is high (Zaller, 1992).
We present a model of the creation of social networks, and of their use by politicians to obtain support, motivated by these empirical findings. These networks can be political par- ties, trade unions, religious coalitions, political action committees, or even listeners of Rush Limbaugh’s radio show. The key idea is that people are influenced by those inside their net- work, but not by those outside, because those inside a network talk to and persuade each other. Networks are created by entrepreneurs using core issues that are centrally important to members, such as religious beliefs or union wages, but can then be “rented out” to politicians who seek votes as well as support for other initiatives and ideas, which might have little to do with their members’ core beliefs.

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LaPorta, Rafael, Florencio López-de-Silanes, Cristian Pop-Eleches, and Andrei Shleifer. 2004. “Judicial Checks and Balances.” Journal of Political Economy 112 (2): 445-420. Abstract

In the Anglo-American constitutional tradition, judicial checks and balances are often seen as crucial guarantees of freedom. Hayek distinguishes two ways in which the judiciary provides such checks and balances: judicial independence and constitutional review. We create a new database of constitutional rules in 71 countries that reflect these provisions. We find strong support for the proposition that both judicial independence and constitutional review are associated with greater freedom. Consistent with theory, judicial independence ac- counts for some of the positive effect of common-law legal origin on measures of economic freedom. The results point to significant benefits of the Anglo-American system of government for freedom.

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2003
Djankov, Simeon, Edward Glaeser, Rafael LaPorta, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2003. “The New Comparative Economics.” Journal of Comparative Economics 31 (4): 595-619. Abstract

In recent years, the field of comparative economics refocused on the comparison of capitalist economies. The theme of the new research is that institutions exert a profound influence on economic development. We argue that, to understand capitalist institutions, one needs to understand the basic tradeoff between the costs of disorder and those of dictatorship. We apply this logic to study the structure of efficient institutions, the consequences of colonial transplantation, and the politics of institutional choice. Journal of Comparative Economics 31 (4) (2003) 595–619. World Bank, Washington, DC 20433, USA; Harvard University, Cambridge, MA 02138, USA; Dartmouth College, Hanover, NH 03755, USA; Yale University, New Haven, CT 06520, USA.
Copyright 2003 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.

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Shleifer, Andrei. 2003. “Will The Sovereign Debt Market Survive?” American Economic Review Papers and Proceedings 93 (2): 85-90.
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Shleifer, Andrei, and Robert W Vishny. 2003. “Stock Market Driven Acquisitions.” Journal of Financial Economics 70 (3): 295-311. Abstract

We present a model of mergers and acquisitions based on stock market misvaluations of the combining firms. The key ingredients of the model are the relative valuations of the merging firms and the market’s perception of the synergies from the combination. The model explains who acquires whom, the choice of the medium of payment, the valuation consequences of mergers, and merger waves. The model is consistent with available empirical findings about characteristics and returns of merging firms, and yields new predictions as well.

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Glaeser, Edward L, and Andrei Shleifer. 2003. “The Rise of the Regulatory State.” Journal of Economic Literature 41 (2): 401-425.
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Djankov, Simeon, Rafael LaPorta, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2003. “Courts.” Quarterly Journal of Economics 118 (2): 453-517. Abstract

In cooperation with Lex Mundi member law firms in 109 countries, we measure and describe the exact procedures used by litigants and courts to evict a tenant for nonpayment of rent and to collect a bounced check. We use these data to construct an index of procedural formalism of dispute resolution for each country. We find that such formalism is systematically greater in civil than in common law countries, and is associated with higher expected duration of judicial proceedings, less consistency, less honesty, less fairness in judicial decisions, and more corruption. These results suggest that legal transplantation may have led to an inefficiently high level of procedural formalism, particularly in developing countries.

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Djankov, Simeon, Caralee McLiesh, Tatiana Nenova, and Andrei Shleifer. 2003. “Who Owns the Media?” Journal of Law and Economics 46 (2): 341-381. Abstract

We examine the patterns of media ownership in 97 countries around the world. We find that almost universally the largest media firms are owned by the government or by private families. Government ownership is more pervasive in broadcasting than in the printed media. We then examine two theories of government ownership of the media: the public interest (Pigouvian) theory, according to which government ownership cures market failures, and the public choice theory, according to which government ownership undermines political and economic freedom. The data support the second theory.

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Burkhart, Michael, Fausto Panunzi, and Andrei Shleifer. 2003. “Family Firms.” Journal of Finance 58 (5): 2167-2201. Abstract

We present a model of succession in a ¢rm owned and managed by its founder. The founder decides between hiring a professional manager or leaving management to his heir, as well as on what fraction of the company to £oat on the stock exchange. We assume that a professional is a better manager than the heir, and describe how the founder’s decision is shaped by the legal environment. This theory of separation of ownership from management includes the Anglo-Saxon and the Continental European patterns of corporate governance as special cases, and generates additional empirical predictions consistent with cross-country evidence.

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Shleifer, Andrei, Edward Glaeser, and Jose Scheinkman. 2003. “The Injustice of Inequality.” Journal of Monetary Economics 50 (1): 199-222. Abstract

In many countries, the operation of legal, political and regulatory institutions is subverted by the wealthy and the politically powerful for their own benefit. This subversion takes the form of corruption, intimidation, and other forms of influence. We present a model of such institutional subversion—focusing specifically on courts—and of the effects of inequality in economic and political resources on the magnitude of subversion. We then use the model to analyze the consequences of institutional subversion for the law and order environment in the country, as well as for capital accumulation and growth. We illustrate the model with historical evidence from Gilded Age United States and the transition economies of the 1990s. We also present some cross-country evidence consistent with the basic prediction of the model.

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Barberis, Nicholas, and Andrei Shleifer. 2003. “Style Investing.” Journal of Financial Economics 68 (2): 161-199. Abstract

We study asset prices in an economy where some investors categorize risky assets into different styles and move funds among these styles depending on their relative performance. In our economy, assets in the same style comove too much, assets in different styles comove too little,and reclassifying an asset into a new style raises its correlation with that style. We also predict that style returns exhibit a rich pattern of own- and cross-autocorrelations and that while asset-level momentum and value strategies are profitable, their style-level counterparts are even more so. We use the model to shed light on several style-related empirical anomalies. Copyright 2003 Elsevier Science B.V. All rights reserved.

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