Publications

2004
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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2002
Glaeser, Edward L, and Andrei Shleifer. 2002. “Legal Origins.” Quarterly Journal of Economics 117 (4): 1193-1229. Abstract

A central requirement in the design of a legal system is the protection of law enforcers from coercion by litigants through either violence or bribes. The higher the risk of coercion, the greater the need for protection and control of law enforcers by the state. Such control, however, also makes law enforcers beholden to the state, and politicizes justice. This perspective explains why, starting in the twelfth and thirteenth centuries, the relativelymore peaceful England developed trials by independent juries, while the less peaceful France relied on state-employed judges to resolve disputes. It may also explain many differences between common and civil law traditions with respect to both the structure of legal systems and the observed social and economic outcomes.

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Shleifer, Andrei, and Daniel Wolfenzon. 2002. “Investor Protection and Equity Markets.” Journal of Financial Economics 66 (1): 3-27. Abstract

We present a simple model of an entrepreneur going public in an environment with poor legal protection of outside shareholders. The model incorporates elements of Becker’s (J. Political Econ. 106 (1968) 172) ‘‘crime and punishment’’ framework into a corporate finance environment of Jensen and Meckling (J. Financial Econ. 3 (1976) 305). We examine the entrepreneur’s decision and the market equilibrium. The model is consistent with a number of empirical regularities concerning the relation between investor protection and corporate finance. It also sheds light on the patterns of capital flows between rich and poor countries and on the politics of reform of investor protection.

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D’Avolio, Gene, Efi Gildor, and Andrei Shleifer. 2002. “Technology, Information Production, and Market Efficiency.” Economic Policy for the Information Economy. Federal Reserve Bank of Kansas City. Abstract

A well functioning securities market relies on the availability of accurate information, a broad base of investors who can process this information, legal protection of these investors’ rights, and a liquid secondary market unencumbered by excessive transaction costs or constraints. When these conditions are satisfied, securities markets are likely to be broader and more efficient, with felicitous consequences for investment and resource allocation. This paper explores the effect of technological advances on these features of the market, emphasizing the incentives facing the producers of financial information.

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LaPorta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W Vishny. 2002. “Investor Protection and Corporate Valuation.” Journal of Finance 57 (3): 1147-1170. Abstract

We present a model of the effects of legal protection of minority shareholders and of cash-flow ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 539 large firms from 27 wealthy economies. Consistent with the model, we find evidence of higher valuation of firms in countries with better protection of minority shareholders and in firms with higher cash-flow ownership by the controlling shareholder.

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Djankov, Simeon, Rafael LaPorta, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2002. “The Regulation of Entry.” Quarterly Journal of Economics 117 (1): 1-37. Abstract

We present new data on the regulation of entry of start-up firms in 85 countries. The data cover the number of procedures, official time, and official cost that a start-up must bear before it can operate legally. The official costs of entry are extremely high in most countries. Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but not better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry. The evidence is inconsistent with public interest theories of regulation, but supports the public choice view that entry regulation benefits politicians and bureaucrats.

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LaPorta, Rafael, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2002. “Government Ownership of Banks.” Journal of Finance 57 (1): 265-301.
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2001
Shleifer, Andrei, and Edward L Glaeser. 2001. “A Reason for Quantity Regulation.” American Economic Review Papers and Proceedings 91 (2): 431-435.
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