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    Bosio, Erica, Simeon Djankov, Edward L. Glaeser, and Andrei Shleifer. Working Paper. “Public Procurement in Law and Practice”. Abstract

    We examine a new data set of laws and practices governing public procurement, as well as procurement outcomes, in 187 countries.  We measure regulation as restrictions on discretion of the procuring agents.  We find that laws and practices are highly correlated with each other across countries, better practices are correlated with better outcomes, but laws themselves are not correlated with outcomes.  To shed light on this puzzle, we present a model of procurement in which both regulation and public sector capacity determine the efficiency of procurement. In the model, regulation is effective in countries with low public sector capacity, and detrimental in countries with high public sector capacity because it inhibits the socially optimal exercise of discretion.  We find evidence broadly consistent with this prediction: regulation of procurement improves outcomes, but only in countries with low public sector capacity.

    Bordalo, Pedro, Nicola Gennaioli, Rafael LaPorta, and Andrei Shleifer. Working Paper. “Expectations of Fundamentals and Stock Market Puzzles”. Abstract

    We revisit several leading puzzles about the aggregate stock market by incorporating into a standard dividend discount model survey expectations of earnings of S&P 500 firms. Using survey expectations, while keeping discount rates constant, explains a significant part of “excess” stock price volatility, price-earnings ratio variation, and return predictability. The evidence is consistent with a mechanism in which good news about fundamentals leads to excessively optimistic forecasts of earnings, especially at long horizons, which inflate stock prices and lead to subsequent low returns. Relaxing rational expectations of fundamentals in a standard asset pricing model accounts for stock market anomalies in a parsimonious way.

    Gennaioli, Nicola, Rafael LaPorta, Florencio Lopez-de-Silanes, and Andrei Shleifer. Forthcoming. “Trust and Insurance Contracts.” Review of Financial Studies. Abstract

    We assemble and analyze a new data set of homeowner insurance claims from 28 independently operated country subsidiaries of a multinational insurance company. A fundamental feature of the data is that such claims are often disputed, and lead to rejections or lower payments. We propose a new model of insurance, in which consumers can make invalid claims and firms can deny valid claims. In this environment, trust and honesty are critical factors that shape insurance contracts and the payment of claims, especially when the disputed amounts are too small for courts. We characterize equilibrium insurance contracts, and show how they depend on the quality of the legal system and the level of trust. We then investigate the incidence of claims, disputes and rejections of claims, and payment of claims in our data, as well as the cost and pricing of insurance. The evidence is consistent with the centrality of trust for insurance markets, as predicted by the model.

    Shleifer, Andrei, Edward L. Glaesar, Simeon Djankov, and Valeria Perotti. Forthcoming. “Property Rights and Urban Form.” Journal of Law and Economics. Abstract
    How do the different elements in the standard bundle of property rights – such as the right of possession or the right of transfer – differentially impact outcomes, such as urban development? This paper incorporates insecure property rights into a standard model of urban land prices and density, and makes predictions about investment in land and property, informality, and the efficiency of land use. Our empirical analysis links data on institutions related to land titling and transfer with multiple urban outcomes, from 190 countries. The evidence is generally consistent with the model’s predictions, and more broadly with the Demsetz’s (1967) approach to property rights institutions. Indeed, we document world-wide improvements in the quality of institutions facilitating property transfer over time.