Andrei Shleifer Research Articles

After Shleifer, who needs Mises?

AbstractThe demise of socialism in Eastern Europe and the transition to a market economy in China and India marked the end of traditional comparative economics as a field. The debate between capitalism and socialism was settled. The economic calculation argument of Ludwig von Mises seemed no longer relevant. In its place, the new comparative economics (NCE) arose. The NCE focuses on the institutional differences that affect the protection of contract and property rights. The research program of Andrei Shleifer has provided numerous insights into how markets operate. This paper examines the Shleifer‐inspired program in comparative economics in light of the economic calculation argument Mises made. Although the recent developments in comparative economics have extended and complemented the contributions of Mises, it has not displaced them. An account of the economic calculation problem is still missing in the new comparative economics.

A Crisis of Beliefs: Investor Psychology and Financial Fragility, by Nicola Gennaioli and Andrei Shleifer. Princeton, NJ: Princeton University Press, 2018. 264 pp.

An abstract is not available for this content so a preview has been provided. Please use the Get access link above for information on how to access this content.

Effects of Labour Regulation on Manufacturing Firms in India: A Leximetric Approach

Abstract Inefficiencies and rigidities in the supply of inputs caused by strict laws and regulation could lead to distortions in the production structures of firms. These distortions, when magnified, can have adverse effects on the economic performance of a country. The study by Botero et al. (Botero, Juan C., Simeon Djankov, Rafael La Porta, Florencio Lopez de-Silanes, and Andrei Shleifer. 2004. “The Regulation of Labor.” The Quarterly Journal of Economics 119: 1339–1382.) among others, has observed that richer counties with social welfare supports tend to regulate labour less than relatively poorer countries; but, these studies concentrate mainly on country-wide or cross-country data leaving out variations exclusively found in micro-level data. This study fills a gap in the literature by conducting a comprehensive study of the effects of labour laws on output and productivity of manufacturing firms in Indian states. Unlike previous studies which measure the strength of labour regulation by interpreting labour laws, this study measures the same by mining information from case-law citations of labour laws and builds an index of labour litigiousness which proxies for the strength of labour regulation. Results show that labour litigation and industrial disputes have significant negative influences on both output and productivity of manufacturing firms.

Discussion

Discussion

Law and Finance in the Chinese Shadow Banking System

Almost twenty years after economists Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny published their groundbreaking and controversial research examining the relationship between investor protection laws and stock market development, our understanding of the relationship between law and finance is still in its theoretical infancy. Today, few would argue that strong laws do not help generate credible commitments, thereby promoting financial development. Ultimately, however, this observation is little more than a useful starting point for exploring the complex, dynamic, and structurally interdependent relationship between law and finance within modern financial markets. So where might we turn for further insights into this important relationship? One potentially useful framework is the ‘Legal Theory of Finance’ (LTF). At the heart of LTF are four interwoven propositions. These propositions emphasize the legal construction of financial markets, their essential hybridity and inherent hierarchy, and the role of the law as not only a mechanism for generating credible commitments, but also a potential source of financial instability. LTF thus both compliments and expands upon conventional frameworks for understanding the relationship between law and finance.This paper uses LTF to explore the emergence, growth, and risks residing within a little known but increasingly important segment of the Chinese shadow banking system: the $USD2 trillion dollar market for wealth management products (WMPs). WMPs possess a number of distinctive legal and economic features. First, despite being marketed by banks and other intermediaries as substitutes for conventional deposits, the liabilities generated by the majority of these products do not reside on bank balance sheets. Second, while WMPs typically lock-in investors’ capital for relatively short periods of time, this capital is often invested into less liquid, longer-term assets. The resulting maturity and liquidity mismatches thus recreate the fragile capital structure of banks. Third, WMPs have emerged largely in response to China’s interventionist approach toward both banking regulation and broader macroeconomic policy. LTF holds out a number of important insights into the emergence of WMPs, their legal structure, their dramatic growth in the wake of the financial crisis, and the risks they pose to financial stability. More broadly, examining WMPs through the lens of LTF highlights the fact that – far from simply representing the ‘rules of the game’ – the law is also often the board, the game pieces, and the dice.

The Failure of Judges and the Rise of Regulators by AndreiShleifer (MIT Press, Cambridge, Massachusetts, 2012), pp. 343.

article reviews the book The Failure of Judges and the Rise of Regulators by Andrei Shleifer.

Erratum to: Andrei Shleifer: The failure of judges and the rise of regulators

Erratum to: Andrei Shleifer: The failure of judges and the rise of regulators

Andrei Shleifer: The failure of judges and the rise of regulators

Andrei Shleifer: The failure of judges and the rise of regulators

Are There Too Many Safe Securities? Securitization and the Incentives for Information Production

We present a model that helps explain several past collapses of securitization markets. Originators issue too many informationally insensitive securities in good times, blunting investor incentives to become informed. The resulting scarcity of informed investors exacerbates market collapses in bad times. Ine¢ ciency arises because informed investors are a public good from the perspective of originators. All originators bene t from the presence of additional informed investors in bad times, but each originator minimizes his reliance on costly informed capital in good times by issuing safe securities. Our model suggests regulations that limit the issuance of safe securities in good times. We are grateful to David Scharfstein and Jeremy Stein for their guidance throughout this project. We thank David Berger, Eric Budish, John Campbell, Sergey Chernenko, Josh Coval, Emmanuel Farhi, Robin Greenwood, Judd Kessler, Josh Schwartzstein, Andrei Shleifer, Alp Simsek, Erik Sta¤ord, Luis Viceira, and seminar participants at Boston University SOM, Cornell Johnson, Dartmouth Tuck, the Federal Reserve Bank of New York, Harvard Business School, LBS, LSE, MIT Sloan, NYU Stern, Ohio State Fisher, Washington University Olin, Wharton, and Yale SOM for helpful comments and suggestions. We also thank Mary Goodman, Matt Kabaker, Andrew Metrick, Morgan Ricks, David Scharfstein, Jeremy Stein, and Larry Summers for early conversations that helped shape the ideas in this paper.

Legal Origins, Investor Protection, and Canada

In Legal Determinants of External Finance, Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny (“LLSV”) argue that the reason that some countries have bigger capital markets than others can be traced to the legal origin of the country, i.e. whether it is a common law or a civil law jurisdiction. This paper explores the LLSV thesis in the context of Canada, which is a common law jurisdiction that also is home to Quebec which has a civil law tradition.Three issues are examined in this paper: first, how and why Canada fared relatively well in the recent financial crisis; second, why Canada has not yet created a national securities regulator; and third, how Quebec, a civil law jurisdiction, operates within an overarching common law framework, and the implications of this cross-fertilization of systems.These three issues are explored by examining the development of various investor protection laws and structures over time in Canada (as opposed to examining investor protection laws at a point in time, as the LLSV studies do), and also by providing context to explain why certain rules and structures have been adapted and others, while economically efficient, may have been rejected. In Canada, as in many other jurisdictions, securities laws and securities structure have an impact on investor protection, as do banking laws and the banking regulatory framework and business culture. Not all investor protection mechanisms are located in the corporate statutes, as LLSV assumes. LLSV did not explore securities law rules, securities law structures, or banking laws. As well, the Canadian system is both structured in such a way and has evolved in such a way that investor protections are fairly consistent between the common law and civil law provinces, even when the civil law statute does not necessarily mimic the common law statute.

Perspectives on La Porta et al’s Corporate Ownership around the World

Rafael La Porta, Florencio Lopez-De-Silanes, and Andrei Shleifer conducted a detailed work on Corporate Ownership Around the World, to identify the real shareholders (owners) and how they control firms. La Porta et al reviewed the findings of Adolph Berle and Gardiner Means that corporations in the United States were largely owned by small shareholders and that control is in the hands of professional managers who are not really accountable to the small shareholders (Berle & Means 1932). They (La Porta et al) averred that control is in the hands families or the state. They found that families and/or for state were the ultimate shareholders, while financial institutions usually had smaller equity control. These families and state also exercise control above their rights by using a form of pyramid structure and by being involved in the firm’s management. They also discovered exceptions where firms are widely held in economies with good legal protection for minority shareholders. In the view of this author, the title did not fully represent the scope of the paper. First their work did not cover ownership around the world but selected 27 wealthy economies, excluding Africa. Secondly, the title did not capture the desire of the authors to evaluate the relationship between ownership and control. A title like “Corporate ownership and control in selected wealthy economies of the world” would have been more appropriate. In this paper, this author will try to critically review this article with a view to highlight its relevance and appropriateness.

The Strategy of Methodology: The Virtues of Being Reductionist for Comparative Law

ion in economics—making assumptions—is not that different from abstraction in, say, philosophical argument. Economists abstract in order to build models. They build models in order to untangle complex and hard-to-decipher real world interactions and focus attention on the detailed structure of a logic of how processes and systems work. Like the philosopher, the economist is interested in the intricacies of how and whether Y follows from a premise X, and indeed whether steps A, B and C are necessary or sufficient to get from X to Y. Using math— not numbers but mostly algebra—is a stepped-up version of this basic method of honing attention to the inner logic of an argument. The virtue of building a model is that it allows a clear conversation about what is and is not being claimed. This is what allows me to respond with a fairly crisp answer, for example, to John Reitz’s concern that I am misguided in focusing on the “adaptability” channel , as opposed to the “political” channel, to explain the impact of legal origin on economic variables arguably identified by the empirical literature starting with La Porta and co-authors in 1997. 1 (“LLSV”). As Reitz describes it, the “adaptability” argument claims that legal origin has an impact on economic welfare because “judges in common law systems have greater freedom to change the law.” The political argument is that with greater judicial independence, “common law courts are able to stand up to state power more effectively” and thus promote the efficiency of markets as against government intervention. Reitz has read my model to construct a more nuanced argument for the adaptability channel in this debate, namely that it is not “common law” systems per se that gives judges greater freedom to change the law, but rather specific institutional features such as the organization of the courts and the judiciary, procedure, opinion-writing practices and so on. That is he assumes I make a different move at step one—what produces greater judicial freedom to change the law—and the same move at step two—greater judicial freedom to change the law produces better law. Understanding why this is not what my model is doing is helpful in illuminating how my project departs from the existing legal origins literature. While it is true that I am focusing on adaptation of the law through adjudication as a key mechanism by which legal institutions have an impact on the quality of law (meaning here the capacity of law to promote social welfare), I am not building on a simple logic of “legal systems produce better economic outcomes when judges have greater freedom to change the law.” I’m rejecting not only step one (common law systems give judges greater freedom) but also step two (greater judicial freedom produces better law.) Indeed, I am rejecting the framework—the set-up—of the legal origins model. The flaws in that framework, I claim, are that it does not explain why judicial freedom would produce better law 1 Rafael LaPorta, Florencio Lopez-de-Silances, Andrei Shleifer and Robert Vishny, “Legal Determinants of External Finance” 52 Journal of Finance 1131 (1997); Rafael LaPorta, Florencio Lopez-de-Silances, Andrei Shleifer and Robert Vishny “Law and Finance” 106 Journal of Political Economy 1113 (1998).

The Effect of State-endorsed Arbitration Institutions on International Trade

During the past two decades, the study of new institutional economics (NIE), with a focus on international and domestic legal-economic institutions, has made a considerable contribution to the unde...

Globalizing Trust? Transferring Anglo-American Minority Shareholder Protections to Civil Law Germany

This paper critically examines the conventional view that the lack of fiduciary duty protections for corporate shareholders in civil law systems explains crucial differences in corporate structure and finance. It questions the thesis that the structure of civil law systems militates against the use of such residual doctrines. This thesis has been developed in a series of widely discussed articles by Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny (LLS&V) and is supported by their empirical study of investor protections in 49 countries. In their studies LLS&V have claimed that the weakness of minority shareholder protections, especially of fiduciary duty protections, explain why securities markets in civil law jurisdictions, such as Germany, France, and Italy have been relatively weak by comparison with common law jurisdictions. These findings have been widely cited. By comparing fiduciary duty protections in Germany and the U.S., with an eye to functional equivalents, this paper shows that neither a fairness deficit nor a literalism constraint can be attributed to civil law systems across the board. The paper shows that, contrary to what LLS&V's data suggest, fiduciary duty protections are by now well-established in the German law of stock corporations.

An Abnormal Country

Andrei Shleifer and Daniel Treisman recently rendered a summary verdict on the post-Soviet Russian transition experience finding that the Federation had become a normal country with the west's assistance, and predicting that it would liberalize and develop further like other successful nations of its type.This essay demonstrates that they are mistaken.It shows factually, and on the norms elaborated by Pareto, Arrow and Bergson that Russia is an abnormal political economy unlikely to democratize, westernize or embrace free enterprise any time soon. JEL classification: P30, P40, P51, P52 Keywords: Russia, transition, welfare

The Marketisation of European Corporate Control: A Critical Political Economy Perspective

We are entering into a new phase in EU corporate governance. More than ever, our action plan must be focused and based on a solid assessment of actual needs of market players and investors. 1 As Ch...

Whither Russia? A Review of Andrei Shleifer's A Normal Country

In this review, the author reflects on the heated debates around views about Russia's postcommunist transition expressed in essays collected in new Andrei Shleifer's book, A Normal Country: Russia after Communism (Harvard University Press, 2005), which were initially published at different times during transition. She focuses on the three questions that have been in the center of the debate among academics and policymakers: What should the sequencing and the speed of reforms be? Should a country have political centralization for fiscal decentralization to be efficient? Is Russia normal? The author argues that Russia's most recent history provides convincing evidence in support of the logic of political and economic transformation as it was understood by Shleifer as early as the beginning of the 1990s.

"Normal Democracies" and Improving How They Are Measured: The Case of Russia

Debates over whether Russia is unique or like other countries have a long history. Responding to current work on that question, especially Andrei Shleifer and Daniel Treisman's argument, a political scientist examines ways to identify and specify in regard to what and compared with which other cohorts of states Russia may be considered normal. Three aggregate data sets, from PolityIV, the World Bank Institute's Voice and Accountability project, and Freedom House, along with individuallevel data from the World Values Survey, are used to assess possible links between the nature of the economy and the nature of the political system. The article explores how normal states—in particular, normal democracies—are identified.

Book Review: Andrei Shleifer, A Normal Country: Russia after Communism.

Book Review: Andrei Shleifer, <i>A Normal Country: Russia after Communism.</i>

Understanding Regulation

European Financial ManagementVolume 11, Issue 4 p. 439-451 Understanding Regulation Andrei Shleifer, Andrei Shleifer Whipple V. N. Jones Professor of Economics, Harvard University email: [email protected]Search for more papers by this author Andrei Shleifer, Andrei Shleifer Whipple V. N. Jones Professor of Economics, Harvard University email: [email protected]Search for more papers by this author First published: 12 September 2005 https://doi.org/10.1111/j.1354-7798.2005.00291.xCitations: 221 Keynote Address at the 2004 European Financial Management Association (EFMA) Meetings, Basel, Switzerland, 2 July 2004. AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Citing Literature Volume11, Issue4September 2005Pages 439-451 RelatedInformation