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Andrei Shleifer's
Scholarly Papers
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Total Downloads
59,735 |
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Citations
14,079 |
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1.
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Investor Protection and Corporate Valuation
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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13 Dec 99
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Last Revised:
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18 Jun 08
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11,326 ( 56) |
770
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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29 Nov 03
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18 Jun 08
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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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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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26 Jul 00
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02 Apr 01
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91
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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 371 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 weaker evidence of the benefits of higher cash flow ownership by controlling shareholders for corporate valuation.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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13 Dec 99
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29 Nov 03
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2,838
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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 371 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 weaker evidence of the benefits of higher cash flow ownership by controlling shareholders for corporate valuation.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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27 Jul 00
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23 Aug 00
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8,397
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Abstract:
Recent research on corporate governance has documented large differences between countries in ownership concentration in publicly traded firms, in the breadth and depth of financial markets, and in the access of firms to external finance. We suggest that there is a common element to the explanations of these differences, namely how well investors, both shareholders and creditors, are protected by law from expropriation by the managers and controlling shareholders of firms. We describe the differences in laws and the effectiveness of their enforcement across countries, summarize the consequences of these differences, and suggest potential strategies of reform of corporate governance. We argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems.
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2.
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Corporate Ownership Around the World
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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Posted:
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31 Jul 98
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20 Apr 08
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4,206 ( 349) |
953
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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04 Aug 00
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20 Apr 08
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119
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We present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely-held, in contrast to the Berle and Means image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions or other widely-held corporations is less common. The controlling shareholders typically have the power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in management. The results suggest that the principal agency problem in large corporations around the world is that of restricting expropriation of minority shareholders by the controlling shareholders, rather than that of restricting empire building by professional managers unaccountable to shareholders.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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31 Jul 98
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26 Nov 03
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4,087
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953
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Abstract:
We present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify the ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely held, in contrast to the Berle and Means image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions or other widely held corporations is far less common. The controlling shareholders typically have power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in management. The results suggest that the central agency problem in large corporations around the world is that of restricting expropriation of minority shareholders by the controlling shareholders, rather than that of restricting empire building by professional managers unaccountable to shareholders.
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3.
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What Works in Securities Laws?
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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Posted:
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05 Aug 03
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08 Mar 05
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2,581 ( 867) |
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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05 Aug 03
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05 Aug 03
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We examine the effect of securities laws on stock market development in 49 countries. We find almost no evidence that public enforcement benefits stock markets, and strong evidence that laws facilitating private enforcement through disclosure and liability rules benefit stock markets.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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29 Dec 04
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08 Mar 05
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2,516
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Abstract:
We examine the effect of securities laws on stock market development in 49 countries. We find almost no evidence that public enforcement benefits stock markets, and strong evidence that laws facilitating private enforcement through disclosure and liability rules benefit stock markets.
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4.
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Agency Problems and Dividend Policies Around the World
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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14 Jan 98
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26 Nov 03
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2,379 ( 1,001) |
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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10 Jul 00
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11 Nov 00
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This paper addresses the question of why firms pay dividends, the so-called outline two agency models of dividends. On what we call outcome minority shareholders to force corporate outsiders to disgorge cash. Under this model, stronger minority shareholder rights should be associated with higher dividends. On what we call substitute a reputation for decent treatment of minority shareholders so that firms can raise equity finance in the future. Under this model, stronger minority shareholder rights reduce the need for establishing a reputation, and so should be associated with lower dividends. We compare these models on a cross-section of 4,000 companies from around the world, which operate in 33 countries with different levels of shareholder protection, and therefore different strength of minority shareholder rights. The findings on payout levels and other results support the outcome agency model of dividends.
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Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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14 Jan 98
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26 Nov 03
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2,275
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This paper addresses the question of why firms pay dividends, the so-called "dividend puzzle," from the agency perspective. We outline two agency models of dividends. On what we call "the outcomes" model, dividends are the result of effective pressure by minority shareholders rights should be associated with higher dividends. On what we call "the substitutes" model, insiders choose to pay dividends to establish a reputation for a decent treatment of minority shareholders so that firms can raise equity finance in the future. Under this model, stronger minority shareholder rights reduce the need for establishing a reputation, and so should be associated with lower dividends. We compare these models on a cross-section of 4,000 companies from around the world, which operate in countries with different levels of investor protection, and therefore different strength of minority shareholder rights. The findings on payout levels, as well as other results, support the outcome agency model of dividends.
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5.
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The New Comparative Economics
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Simeon Djankov Ministry of Finance Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Florencio Lopez de Silanes EDHEC Business School Rafael La Porta Tuck School of Business at Dartmouth Andrei Shleifer Harvard University - Department of Economics
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Posted:
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05 Apr 03
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21 Dec 04
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2,328 ( 1,044) |
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Simeon Djankov Ministry of Finance Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Florencio Lopez de Silanes EDHEC Business School Rafael La Porta Tuck School of Business at Dartmouth Andrei Shleifer Harvard University - Department of Economics
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17 Jun 03
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19 Jun 03
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11
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In recent years, comparative economics experienced a revival, with a new focus on comparing 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 trade-off between the costs of disorder and those of dictatorship. We then apply this logic to study the structure of efficient institutions, the consequences of colonial transplantation, and the politics of institutional choice.
Comparative economics, institutions, colonial transplantations, transition
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Simeon Djankov Ministry of Finance Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Florencio Lopez de Silanes EDHEC Business School Rafael La Porta Tuck School of Business at Dartmouth Andrei Shleifer Harvard University - Department of Economics
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05 Apr 03
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17 Jun 03
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50
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Abstract:
In recent years, comparative economics experienced a revival, with a new focus on comparing 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 then apply this logic to study the structure of efficient institutions, the consequences of colonial transplantation, and the politics of institutional choice.
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Andrei Shleifer Harvard University - Department of Economics Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Florencio Lopez de Silanes EDHEC Business School Rafael La Porta Tuck School of Business at Dartmouth Simeon Djankov Ministry of Finance
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21 Dec 04
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21 Dec 04
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2,267
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Abstract:
In recent years, comparative economics experienced a revival, with a new focus on comparing capitalist economies. The theme of the new research is that institutions exert a profound influence on economic development. The authors argue that, to understand capitalist institutions, one needs to understand the basic tradeoff between the costs of disorder and those of dictatorship. They then apply this logic to study the structure of efficient institutions, the consequences of colonial transplantation, and the politics of institutional choice. This paper - a product of the Private Sector Advisory Department, Private Sector Development Vice Presidency - is part of a larger effort to understand institutional differences in the regulation of business.
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6.
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Style Investing
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics
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Posted:
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11 Dec 00
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26 Nov 03
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2,028 ( 1,388) |
138
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics
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23 Jan 01
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26 Nov 03
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1,957
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We study asset prices in an economy where some investors classify risky assets into different styles and move funds back and forth between these styles depending on their relative performance. Our assumptions imply that news about one style can affect the prices of other apparently unrelated styles, that assets in the same style will comove too much while assets in different styles comove too little, and that high average returns on a style will be associated with common factors for reasons unrelated to risk. They also lead to a rich pattern of own- and cross-autocorrelations, sample premia that can be very different from true premia, and imply that style momentum strategies will be profitable. We use our model to shed light on many puzzling features of the data.
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics
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11 Dec 00
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05 Oct 01
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71
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Abstract:
We study asset prices in an economy where some investors classify risky assets into different styles and move funds back and forth between these styles depending on their relative performance. Our assumptions imply that news about one style can affect the prices of other apparently unrelated styles, that assets in the same style will comove too much while assets in different styles comove too little, and that high average returns on a style will be associated with common factors for reasons unrelated to risk. They also lead to a rich pattern of own- and cross-autocorrelations, sample premia that can be very different from true premia, and imply that style momentum strategies will be profitable. We use our model to shed light on many puzzling features of the data.
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7.
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Stock Market Driven Acquisitions
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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20 Aug 01
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26 Oct 01
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1,989 ( 1,439) |
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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20 Aug 01
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20 Aug 01
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93
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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, the horizons of their respective managers, and the market's perception of the synergies from the combination. The model explains who acquirers whom, whether the medium of payment is cash or stock, what are the valuation consequences of mergers, and why there are 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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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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04 Oct 01
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26 Oct 01
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1,896
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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, the horizons of their respective managers, and the market's perception of the synergies from the combination. The model explains who acquirers whom, whether the medium of payment is cash or stock, what are the valuation consequences of mergers, and why there are 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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8.
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Tunnelling
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Simon H. Johnson Massachusetts Institute of Technology (MIT) - Entrepreneurship Center Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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Posted:
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25 Jan 00
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17 Apr 08
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1,851 ( 1,674) |
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Simon H. Johnson Massachusetts Institute of Technology (MIT) - Entrepreneurship Center Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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11 Jun 00
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17 Apr 08
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70
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Tunnelling is defined as the transfer of assets and profits out of firms for the benefit of their controlling shareholders. We describe the various forms that tunnelling can take, and examine under what circumstances it is legal. We discuss two important legal principles -- the duty of care and the duty of loyalty -- which courts use to analyze cases involving tunnelling. Several important legal cases from France, Belgium, and Italy illustrate how and why the law accommodates tunnelling in civil law countries, and why certain kinds of tunnelling are less likely to pass legal scrutiny in common law countries.
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Simon H. Johnson Massachusetts Institute of Technology (MIT) - Entrepreneurship Center Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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25 Jan 00
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15 Nov 01
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Abstract:
Tunnelling is defined as the transfer of assets and profits out of firms for the benefit of their controlling shareholders. We describe the various forms that tunnelling can take, and examine under what circumstances it is legal. We discuss two important legal principles -- the duty of care and the duty of loyalty -- which courts use to analyze cases involving tunnelling. Several important legal cases from France, Belgium, and Italy illustrate how and why the law accommodates tunnelling in civil law countries, and why certain kinds of tunnelling are less likely to pass legal scrutiny in common law countries.
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Simon H. Johnson Massachusetts Institute of Technology (MIT) - Entrepreneurship Center Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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25 Jan 00
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26 Nov 03
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1,781
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Abstract:
Tunnelling is defined as the transfer of assets and profits out of firms for the benefit of their controlling shareholders. We describe the various forms that tunnelling can take, and examine under what circumstances it is legal. We discuss two important legal principles - the duty of care and the duty of loyalty - which courts use to analyze cases involving tunnelling. Several important legal cases from France, Belgium, and Italy illustrate how and why the law accommodates tunnelling in civil law countries, and why certain kinds of tunnelling are less likely to pass legal scrutiny in common law countries.
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9.
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Investor Protection and Equity Markets
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Andrei Shleifer Harvard University - Department of Economics Daniel Wolfenzon Columbia Business School
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Posted:
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12 Oct 00
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Last Revised:
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15 Apr 09
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1,647 ( 2,060) |
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Andrei Shleifer Harvard University - Department of Economics
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12 Nov 08
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15 Apr 09
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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 Beckerâ¬"s (1968) â¬Scrime and punishmentâ¬? framework into a corporate finance environment of Jensen and Meckling (1976). We examine the entrepreneurâ¬"s decision and the market equilibrium. The model is consistent with a number of empirical regularities concerning the relationship 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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Andrei Shleifer Harvard University - Department of Economics Daniel Wolfenzon Columbia Business School
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03 Nov 08
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23 Dec 08
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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 Beckerâ¬"s (1968) â¬Scrime and punishmentâ¬? framework into a corporate finance environment of Jensen and Meckling (1976). We examine the entrepreneurâ¬"s decision and the market equilibrium. The model is consistent with a number of empirical regularities concerning the relationship between investor protection and corporate finance. It also sheds light on the patterns of capital flows between richand poor countries and on the politics of reform of investor protection.
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Andrei Shleifer Harvard University - Department of Economics Daniel Wolfenzon Columbia Business School
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22 Oct 00
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14 Sep 01
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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 (1968) crime and punishment' framework into a corporate finance environment of Jensen and Meckling (1976). We examine the entrepreneur's decision and the market equilibrium. The model is consistent with a number of empirical regularities concerning the relationship between investor protection and corporate finance.
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Andrei Shleifer Harvard University - Department of Economics Daniel Wolfenzon Columbia Business School
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29 Oct 00
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26 Nov 03
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1,130
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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 (1968) "crime and punishment" framework into a corporate finance environment of Jensen and Meckling (1976). We examine the entrepreneur's decision and the market equilibrium. The model is consistent with a number of empirical regularities concerning the relationship between investor protection and corporate finance.
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Andrei Shleifer Harvard University - Department of Economics Daniel Wolfenzon Columbia Business School
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12 Oct 00
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12 Oct 00
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453
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Abstract:
We present a simple model of an entrepreneur going public in an environement with poor legal protection of outside shareholders. The model incorporates elements of Becker's (1968) "crime and punishment" framework into a corporate finance environment of Jensen and Meckling (1976). We examine the entrepreneur's decision and the market equilibrium. The model is consistent with a number of empirical regularities concerning the relationship between investor protection and corporate finance.
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10.
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Fausto Panunzi Bocconi University - Department of Economics (DEP) Mike C. Burkart Stockholm School of Economics - Department of Finance Andrei Shleifer Harvard University - Department of Economics
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06 Feb 02
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26 Nov 03
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1,634 (2,082)
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Abstract:
We present a model of succession in a firm owned and managed by its founder. The founder decides between hiring a professional manager or leaving management to his heir, as well as on how much, if any, of the shares to float 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. Specifically, we show that, in legal regimes that successfully limit the expropriation of minority shareholders, the widely held professionally managed corporation emerges as the equilibrium outcome. In legal regimes with intermediate protection, management is delegated to a professional, but the family stays on as large shareholders to monitor the manager. In legal regimes with the weakest protection, the founder designates his heir to manage and ownership remains inside the family. 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.
Family Firms, Legal Protection, Corporate Governance
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11.
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Comovement
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics Jeffrey A. Wurgler NYU Stern School of Business
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06 Apr 02
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23 Dec 08
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1,436 ( 2,626) |
100
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics Jeffrey A. Wurgler NYU Stern School of Business
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07 Nov 08
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16 Dec 08
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19
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Abstract:
A number of studies have identified patterns of positive correlation of returns, or comovement, among different traded securities. We distinguish three views of such co- movement. The traditional "fundamentals" view explains the comovement of securities through positive correlations in the rational determinants of their values, such as cash ows or discount rates. "Category-based" comovement occurs when investors classify different securities into the same asset class and shift resources in and out of this class in correlated ways. A related phenomenon of "habitat-based" comovement arises when a group of investors restricts its trading to a given set of securities, and moves in and out of that set in tandem.We present models of each of the three types of comovement, and then assess them empirically using data on stock inclusions into and deletions from the S&P 500 index. Index changes are noteworthy because they change a stock's category and investor clientele (habitat), but do not change its fundamentals. We find that when a stock is added to the index, its beta and R-squared with respect to the index increase, while its beta with respect to stocks outside the index falls. The converse happens when a stock is deleted. These results are broadly supportive of the category and habitat views of comovement, but not of the fundamentals view. More generally, we argue that these non-traditional views may help explain other instances of comovement in the data.
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics Jeffrey A. Wurgler NYU Stern School of Business
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05 Nov 08
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16 Dec 08
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25
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Abstract:
We consider two broad views of return comovement: the traditional view, derived from frictionless economies with rational investors, which attributes it to comovement in news about fundamental value, and an alternative view, in which market frictions or noise-trader sentiment delink it from comovement in fundamentals. Building on Vijh (1994), we use data on inclusions into the S&P 500 to distinguish these views. 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.
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics Je rey Wurgler affiliation not provided to SSRN
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03 Nov 08
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23 Dec 08
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58
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98
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Abstract:
A number of studies have identified patterns of positive correlation of returns, orcomovement, among different traded securities. We distinguish three views of such comovement. The traditional \fundamentals" view explains the comovement of securities through positive correlations in the rational determinants of their values, such as cash flows or discount rates. \Category-based" comovement occurs when investors classify different securities into the same asset class and shift resources in and out of this class in correlated ways. A related phenomenon of \habitat-based" comovement arises when a group of investors restricts its trading to a given set of securities, and moves in and out of that set in tandem. We present models of each of the three types of comovement, and then assess them empirically using data on stock inclusions into and deletions from the S&P 500 index.Index changes are noteworthy because they change a stock's category and investorclientele (habitat), but do not change its fundamentals. We find that when a stock isadded to the index, its beta and R-squared with respect to the index increase, while itsbeta with respect to stocks outside the index falls. The converse happens when a stockis deleted. These results are broadly supportive of the category and habitat views of comovement, but not of the fundamentals view. More generally, we argue that thesenon-traditional views may help explain other instances of comovement in the data.
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics Jeffrey A. Wurgler NYU Stern School of Business
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11 Apr 02
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19 Apr 02
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28
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100
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Abstract:
A number of studies have identifed patterns of positive correlation of returns, or comovement, among different traded securities. We distinguish three views of such comovement. The traditional 'fundamentals' view explains the comovement of securities through positive correlations in the rational determinants of their values, such as cash flows or discount rates. 'Category-based' comovement occurs when investors classify different securities into the same asset class and shift resources in and out of this class in correlated ways. A related phenomenon of 'habitat-based' comovement arises when a group of investors restricts its trading to a given set of securities, and moves in and out of that set in tandem. We present models of each of the three types of comovement, and then assess them empirically using data on stock inclusions into and deletions from the S&P 500 index. Index changes are noteworthy because they change a stock's category and investor clientele (habitat), but do not change its fundamentals. We find that when a stock is added to the index, its beta and R-squared with respect to the index increase, while its beta with respect to stocks outside the index falls. The converse happens when a stock is deleted. These results are broadly supportive of the category and habitat views of comovement, but not of the fundamentals view. More generally, we argue that these non-traditional views may help explain other instances of comovement in the data.
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics Jeffrey A. Wurgler NYU Stern School of Business
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06 Apr 02
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Last Revised:
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26 Nov 03
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1,306
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100
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Abstract:
A number of studies have identifed patterns of positive correlation of returns, or comovement, among different traded securities. We distinguish three views of such comovement. The traditional "fundamentals" view explains the comovement of securities through positive correlations in the rational determinants of their values, such as cash flows or discount rates. "Category-based" comovement occurs when investors classify different securities into the same asset class and shift resources in and out of this class in correlated ways. A related phenomenon of "habitat-based" comovement arises when a group of investors restricts its trading to a given set of securities, and moves in and out of that set in tandem. We present models of each of the three types of comovement, and then assess them empirically using data on stock inclusions into and deletions from the S&P 500 index. Index changes are noteworthy because they change a stock's category and investor clientele (habitat), but do not change its fundamentals. We find that when a stock is added to the index, its beta and R-squared with respect to the index increase, while its beta with respect to stocks outside the index falls. The converse happens when a stock is deleted. These results are broadly supportive of the category and habitat views of comovement, but not of the fundamentals view. More generally, we argue that these non-traditional views may help explain other instances of comovement in the data.
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12.
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Coase v. the Coasians
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Simon H. Johnson Massachusetts Institute of Technology (MIT) - Entrepreneurship Center Andrei Shleifer Harvard University - Department of Economics
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Posted:
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28 Dec 99
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17 Apr 08
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1,417 ( 2,678) |
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Simon H. Johnson Massachusetts Institute of Technology (MIT) - Entrepreneurship Center Andrei Shleifer Harvard University - Department of Economics
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09 Jul 00
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17 Apr 08
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The Coase theorem implies that, in a world of positive transaction costs, any of a number of strategies, including judicially enforced private contracts, judicially enforced laws, or even government regulation, may be the cheapest way to bring about efficient resource allocation. Unfortunately, some Coasians have ignored the possibility that the last of these strategies may sometimes be the best. This paper compares the regulation of financial markets in Poland and the Czech Republic in the 1990s, when the judicial systems remained underdeveloped in both countries. In Poland, strict enforcement of the securities law by an independent Securities and Exchange Commission was associated with rapid development of the stock market. In the Czech Republic, hands-off regulation was associated with a near collapse of the stock market. These episodes illustrate the centrality of law enforcement in making markets work, and the possible role of regulators in law enforcement.
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Simon H. Johnson Massachusetts Institute of Technology (MIT) - Entrepreneurship Center Andrei Shleifer Harvard University - Department of Economics
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28 Dec 99
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26 Nov 03
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1,384
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12
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Abstract:
The Coase theorem implies that, in a world of positive transaction costs, any of a number of strategies, including judicially enforced private contracts, judicially enforced laws, or even government regulation, may be the cheapest way to bring about efficient resource allocation. Unfortunately, some Coasians have ignored the possibility that the last of these strategies may sometimes be the best. This paper compares the regulation of financial markets in Poland and the Czech Republic in the 1990s, when the judicial systems remained underdeveloped in both countries. In Poland, strict enforcement of the securities law by an independent Securities and Exchange Commission was associated with rapid development of the stock market. In the Czech Republic, hands-off regulation was associated with a near collapse of the stock market. These episodes illustrate the centrality of law enforcement in making markets work, and the possible role of regulators in law enforcement.
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13.
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The Regulation of Entry
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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08 Sep 00
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30 Dec 04
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1,347 ( 2,962) |
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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25 Sep 01
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07 Dec 01
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We present new data on the regulation of entry of start-up firms in 85 countries. The data covers 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.
Regulation, business entry
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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04 Oct 00
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30 Dec 04
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Abstract:
New data show that countries that regulate the entry of new firms more heavily have greater corruption and larger unofficial economies, but not better quality goods. The evidence supports the view that regulating entry benefits politicians and bureaucrats. Djankov and his coauthors present new data on the regulation of the entry of start-up firms in 85 countries. The data cover the number of procedures, official time, and official costs that a start-up firm must bear before it can operate legally. The official costs of entry are extremely high in most countries. Countries that regulate entry more heavily have greater corruption and larger unofficial economies, but not better quality goods (public or private). Countries with more democratic and limited governments regulate entry more lightly. The evidence is inconsistent with public interest theories of regulation, but supports the public choice view that regulating entry benefits politicians and bureaucrats. This paper - a product of the Financial Sector Strategy and Policy Department - is part of a larger effort in the department to educate policymakers on the costs of regulation. The study was funded by the Bank's Research Support Budget under the research project "The Regulation of Small Businesses."
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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08 Sep 00
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07 Dec 01
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67
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Abstract:
We present new data on the regulation of entry of start-up firms in 75 countries. The data set contains information on 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 fewer entry regulations. The evidence is inconsistent with Pigouvian (helping hand) theories of benevolent regulation, but support the (grabbing hand) view that entry regulation benefits politicians and bureaucrats.
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14.
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Government Ownership of Banks
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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Posted:
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16 May 00
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26 Nov 03
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1,274 ( 3,241) |
229
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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22 Nov 03
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22 Nov 03
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Abstract:
We assemble data on government ownership of banks around the world. The data show that such ownership is large and pervasive, and higher in countries with low levels of per capita income, backward financial systems, interventionist and inefficient governments, and poor protection of property rights. Higher government ownership of banks in 1970 is associated with slower subsequent financial development and lower growth of per capita income and productivity. This evidence supports 'political' theories of the effects of government ownership of firms.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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09 Aug 00
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26 Nov 03
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1,232
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Abstract:
In this paper, we investigate a neglected aspect of financial systems of many countries around the world: government ownership of banks. We assemble data which establish four findings. First, government ownership of banks is large and pervasive around the world. Second, such ownership is particularly significant in countries with low levels of per capita income, underdeveloped financial systems, interventionist and inefficient governments, and poor protection of property rights. Third, government ownership of banks is associated with slower subsequent financial development. Finally, government ownership of banks is associated with lower subsequent growth of per capita income, and in particular with lower growth of productivity rather than slower factor accumulation. This evidence is inconsistent with optimistic "development" theories of government ownership of banks common in the 1960s, but supports the more "political" theories of the effects of government ownership of firms.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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16 May 00
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10 Apr 01
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42
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Abstract:
In this paper, we investigate a neglected aspect of financial systems of many countries around the world: government ownership of banks. We assemble data which establish four findings. First, government ownership of banks is large and pervasive around the world. Second, such ownership is particularly significant in countries with low levels of per capita income, underdeveloped financial systems, interventionist and inefficient governments, and poor protection of property rights. Third, government ownership of banks is associated with slower subsequent financial development. Finally, government ownership of banks is associated with lower subsequent growth of per capita income, and in particular with lower growth of productivity rather than slower factor accumulation. This evidence is inconsistent with the optimistic "development" theories of government ownership of banks common in the 1960s, but supports the more recent "political" theories of the effects of government ownership of firms.
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15.
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Gene M. D'Avolio Harvard University, Graduate School of Business Administration Efi Gildor Gildor Trading Inc. Andrei Shleifer Harvard University - Department of Economics
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09 Oct 01
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26 Nov 03
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1,156 (3,854)
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2
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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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16.
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Olivier J. Blanchard Massachusetts Institute of Technology (MIT) - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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07 Aug 00
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26 Nov 03
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1,088 (4,277)
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48
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Abstract:
In China, local governments have actively contributed to the growth of new firms. In Russia, local governments have typically stood in the way, be it through taxation, regulation, or corruption. There appears to be two main reasons behind the behavior of local governments in Russia. First, capture by old firms, leading local governments to protect them from competition by new entrants. Second, competition for rents by local officials, eliminating incentives for new firms to enter. The question then is why this has not happened in China. We argue that the answer lies in the degree of political centralization present in China, but not in Russia. Transition in China has taken place under the tight control of the communist party. As a result, the central government has been in a strong position both to reward or to punish local administrations, reducing both the risk of local capture or the scope of competition for rents. By contrast, transition in Russia has come with the emergence of a partly dysfunctional democracy. The central government has been neither strong enough to impose its views, nor strong enough to set clear rules about the sharing of the proceeds of growth. As a result, local governments have had few incentives either to resist capture or to rein in competition for rents. Based on the experience of China, a number of researchers have argued that federalism could play a central role in development. We agree, but with an important caveat. We believe the experience of Russia indicates that another ingredient is crucial, namely political centralization.
Russia, China, Transition, Decentralization, Centralization, Federalism, Local Governments, Corruption
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17.
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Who Owns the Media?
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Simeon Djankov Ministry of Finance Caralee McLiesh World Bank - International Finance Corporation (IFC) Tatiana Nenova World Bank - Policy Unit Andrei Shleifer Harvard University - Department of Economics
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Posted:
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26 Apr 01
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17 Dec 04
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1,069 ( 4,397) |
74
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Simeon Djankov Ministry of Finance Caralee McLiesh World Bank - International Finance Corporation (IFC) Tatiana Nenova World Bank - Policy Unit Andrei Shleifer Harvard University - Department of Economics
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10 May 01
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14 May 01
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34
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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. Government ownership of the media is generally associated with less press freedom, fewer political and economic rights, and, most conspicuously, inferior social outcomes in the areas of education and health. It does not appear that adverse consequences of government ownership of the media are restricted solely to the instances of government monopoly.
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Simeon Djankov Ministry of Finance Caralee McLiesh World Bank - International Finance Corporation (IFC) Tatiana Nenova World Bank - Policy Unit Andrei Shleifer Harvard University - Department of Economics
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26 Apr 01
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17 Dec 04
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1,035
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Abstract:
Almost universally the largest media firms are controlled by the government or by private families. Djankov, McLiesh, Nenova, and Shleifer examine patterns of media ownership in 97 countries around the world. They find that almost universally the largest media firms are controlled by the government or by private families. Government ownership is more pervasive in broadcasting than in the printed media. Government ownership is generally associated with less press freedom, fewer political and economic rights, inferior governance, and, most conspicuously, inferior social outcomes in education and health. The adverse effects of government ownership on political and economic freedom are stronger for newspapers than for television. The adverse effects of government ownership of the media do not appear to be restricted solely to instances of government monopoly. Djankov, McLiesh, Nenova, and Shleifer present a range of evidence on the adverse consequences of state ownership of the media. State ownership of the media is often argued to be justified on behalf of the social needs of the disadvantaged. But if their findings are correct, increasing private ownership of the media - through privatization or by encouraging the entry of privately owned media - can advance a variety of political and economic goals, especially those of meeting the social needs of the poor. This paper - a product of the Office of the Senior Vice President, Development Economics - is one in a series of background papers prepared for World Development Report 2002: Institutions for Markets.
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18.
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The Law and Economics of Self-Dealing
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Rafael La Porta Tuck School of Business at Dartmouth Simeon Djankov Ministry of Finance Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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Posted:
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07 Dec 05
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06 Apr 06
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1,049 ( 4,531) |
180
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Rafael La Porta Tuck School of Business at Dartmouth Simeon Djankov Ministry of Finance Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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06 Apr 06
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06 Apr 06
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54
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We present a new measure of legal protection of minority shareholders against expropriation by corporate insiders: the anti-self-dealing index. Assembled with the help of Lex Mundi law firms, the index is calculated for 72 countries based on legal rules prevailing in 2003, and focuses on private enforcement mechanisms, such as disclosure, approval, and litigation, governing a specific self-dealing transaction. This theoretically-grounded index predicts a variety of stock market outcomes, and generally works better than the commonly used index of anti-director rights.
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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07 Dec 05
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06 Feb 06
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995
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180
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Abstract:
We present a new measure of legal protection of minority shareholders against expropriation by corporate insiders: the anti-self-dealing index. Assembled with the help of Lex Mundi law firms, the index is calculated for 72 countries based on legal rules prevailing in 2003, and focuses on private enforcement mechanisms, such as disclosure, approval, and litigation, governing a specific self-dealing transaction. This theoretically-grounded index predicts a variety of stock market outcomes, and generally works better than the commonly used index of anti-director rights.
legal protection, disclosure, stock market
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19.
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Media Bias
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Sendhil Mullainathan Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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Posted:
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25 Oct 02
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26 Nov 03
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986 ( 5,045) |
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Sendhil Mullainathan Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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25 Oct 02
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25 Oct 02
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102
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Abstract:
There are two different types of media bias. One bias, which we refer to as ideology, reflects a news outlet's desire to affect reader opinions in a particular direction. The second bias, which we refer to as spin, reflects the outlet's attempt to simply create a memorable story. We examine competition among media outlets in the presence of these biases. Whereas competition can eliminate the effect of ideological bias, it actually exaggerates the incentive to spin stories.
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Sendhil Mullainathan Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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20 Nov 02
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26 Nov 03
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884
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Abstract:
There are two different types of media bias. One bias, which we refer to as ideology, reflects a news outlet's desire to affect reader opinions in a particular direction. The second bias, which we refer to as spin, reflects the outlet's attempt to simply create a memorable story. We examine competition among media outlets in the presence of these biases. Whereas competition can eliminate the effect of ideological bias, it actually exaggerates the incentive to spin stories.
Media Bias
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20.
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The Guarantees of Freedom
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Cristian Pop-Eleches Columbia University - School of International & Public Affairs (SIPA) Andrei Shleifer Harvard University - Department of Economics
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Posted:
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23 Jan 02
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Last Revised:
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26 Nov 03
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915 ( 5,752) |
9
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Cristian Pop-Eleches Columbia University - School of International & Public Affairs (SIPA) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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02 Feb 02
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Last Revised:
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29 Jul 02
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27
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9
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Abstract:
Hayek (1960) distinguishes the institutions of English freedom, which guarantee the independence of judges from political interference in the administration of justice, from those of American freedom, which allow judges to restrain law-making powers of the sovereign through constitutional review. We create a data base of constitutional rules in 71 countries that reflect these institutions of English and American freedom, and ask whether these rules predict economic and political freedom in a cross-section of countries. We find that the English institutions of judicial independence are strong predictors of economic freedom and weaker predictors of political freedom. The American institutions of checks and balances are strong predictors of political but not of economic freedom. Judicial independence explains half of the positive effect of common law legal origin on measures of economic freedom.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Cristian Pop-Eleches Columbia University - School of International & Public Affairs (SIPA) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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23 Jan 02
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Last Revised:
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26 Nov 03
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463
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9
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Abstract:
Hayek (1960) distinguishes the institutions of English freedom, which guarantee the independence of judges from political interference in the administration of justice, from those of American freedom, which allow judges to restrain law-making powers of the sovereign through constitutional review. We create a data base of constitutional rules in 71 countries that reflect these institutions of English and American freedom, and ask whether these rules predict economic and political freedom in a cross-section of countries. We find that the English institutions of judicial independence are strong predictors of economic freedom and weaker predictors of political freedom. The American institutions of checks and balances are strong predictors of political but not of economic freedom. Judicial independence explains half of the positive effect of common law legal origin on measures of economic freedom.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Cristian Pop-Eleches Columbia University - School of International & Public Affairs (SIPA) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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01 Feb 02
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Last Revised:
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29 May 02
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425
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9
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Abstract:
Hayek (1960) distinguishes the institutions of English freedom, which guarantee the independence of judges from political interference in the administration of justice, from those of American freedom, which allow judges to restrain law-making powers of the sovereign through constitutional review. We create a data base of constitutional rules in 71 countries that reflect these institutions of English and American freedom, and ask whether these rules predict economic and political freedom in a cross-section of countries. We find that the English institutions of judicial independence are strong predictors of economic freedom and weaker predictors of political freedom. The American institutions of checks and balances are strong predictors of political but not of economic freedom. Judicial independence explains half of the positive effect of common law legal origin on measures of economic freedom.
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21.
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Do Institutions Cause Growth?
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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Posted:
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16 Jun 04
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Last Revised:
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10 Oct 04
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903 ( 5,890) |
202
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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04 Jul 04
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Last Revised:
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14 Aug 04
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110
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202
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Abstract:
We revisit the debate over whether political institutions cause economic growth, or whether, alternatively, growth and human capital accumulation lead to institutional improvement. We find that most indicators of institutional quality used to establish the proposition that institutions cause growth are constructed to be conceptually unsuitable for that purpose. We also find that some of the instrumental variable techniques used in the literature are flawed. Basic OLS results, as well as a variety of additional evidence, suggest that a) human capital is a more basic source of growth than are the institutions, b) poor countries get out of poverty through good policies, often pursued by dictators, and c) subsequently improve their political institutions.
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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16 Jun 04
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Last Revised:
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10 Oct 04
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793
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202
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Abstract:
We revisit the debate over whether political institutions cause economic growth, or whether, alternatively, growth and human capital accumulation lead to institutional improvement. We find that most indicators of institutional quality used to establish the proposition that institutions cause growth are constructed to be conceptually unsuitable for that purpose. We also find that some of the instrumental variable techniques used in the literature are flawed. Basic OLS results, as well as a variety of additional evidence, suggest that a) human capital is a more basic source of growth than are the institutions, b) poor countries get out of poverty through good policies, often pursued by dictators, and c) subsequently improve their political institutions.
Institutions, growth, human capital
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22.
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The Economic Consequences of Legal Origins
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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Posted:
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09 Nov 07
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Last Revised:
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29 Nov 07
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869 ( 6,300) |
76
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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27 Nov 07
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Last Revised:
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29 Nov 07
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33
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76
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Abstract:
In the last decade, economists have produced a considerable body of research suggesting that the historical origin of a country's laws is highly correlated with a broad range of its legal rules and regulations, as well as with economic outcomes. We summarize this evidence and attempt a unified interpretation. We also address several objections to the empirical claim that legal origins matter. Finally, we assess the implications of this research for economic reform.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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09 Nov 07
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Last Revised:
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09 Nov 07
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836
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76
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Abstract:
In the last decade, economists have produced a considerable body of research suggesting that the historical origin of a country's laws is highly correlated with a broad range of its legal rules and regulations, as well as with economic outcomes. We summarize this evidence and attempt a unified interpretation. We also address several objections to the empirical claim that legal origins matter. Finally, we assess the implications of this research for economic reform.
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23.
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Courts: The Lex Mundi Project
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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Posted:
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19 Mar 02
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Last Revised:
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20 Nov 09
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823 ( 6,818) |
45
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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18 Oct 03
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Last Revised:
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24 Oct 03
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0
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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 non-payment 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. Moreover, procedural formalism is associated with higher expected duration of judicial proceedings, more corruption, less consistency, less honesty, less fairness in judicial decisions, and inferior access to justice. These results suggest that legal transplantation may have led to an inefficiently high level of procedural formalism, particularly in developing countries.
Enforcement of contracts, courts, judicial efficiency
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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04 Jun 02
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Last Revised:
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05 Jan 04
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34
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45
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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 non-payment 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. Moreover, procedural formalism is associated with higher expected duration of judicial proceedings, more corruption, less consistency, less honesty, less fairness in judicial decisions, and inferior access to justice. These results suggest that legal transplantation may have led to an inefficiently high level of procedural formalism, particularly in developing countries.
Enforcement of contracts, courts, judicial efficiency
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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11 Apr 02
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Last Revised:
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20 Nov 09
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35
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45
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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 non-payment 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. Moreover, procedural formalism is associated with higher expected duration of judicial proceedings, more corruption, less consistency, less honesty, less fairness in judicial decisions, and inferior access to justice. These results suggest that legal transplantation may have led to an inefficiently high level of procedural formalism, particularly in developing countries.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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19 Mar 02
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Last Revised:
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26 Nov 03
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754
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45
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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 non-payment 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. Moreover, procedural formalism is associated with higher expected duration of judicial proceedings, more corruption, less consistency, less honesty, less fairness in judicial decisions, and inferior access to justice. 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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24.
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The Rise of the Regulatory State
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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Posted:
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13 Nov 01
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Last Revised:
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26 Nov 03
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807 ( 7,039) |
77
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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14 Dec 01
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Last Revised:
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19 Jun 03
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50
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77
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Abstract:
During the Progressive Era at the beginning of the 20th century, the United States replaced litigation by regulation as the principal mechanism of social control of business. To explain why this happened, we present a model of choice of law enforcement strategy between litigation and regulation based on the idea that justice can be subverted with sufficient expenditure of resources. The model suggests that courts are more vulnerable to subversion than regulators, especially in an environment of significant inequality of wealth and political power. The switch to regulation can then be seen as an efficient response to the subversion of justice by robber barons during the Gilded Age. The model makes sense of the progressive reform agenda, and of the successes and failures of alternative law enforcement strategies in different countries.
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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13 Nov 01
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Last Revised:
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26 Nov 03
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757
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77
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Abstract:
During the Progressive Era at the beginning of the 20th century, the United States replaced litigation by regulation as the principal mechanism of social control of business. To explain why this happened, we present a model of choice of law enforcement strategy between litigation and regulation based on the idea that justice can be subverted with sufficient expenditure of resources. The model suggests that courts are more vulnerable to subversion than regulators, especially in an environment of significant inequality of wealth and political power. The switch to regulation can then be seen as an efficient response to the subversion of justice by robber barons during the Gilded Age. The model makes sense of the progressive reform agenda, and of the successes and failures of alternative law enforcement strategies in different countries.
Law and Economics
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25.
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Legal Origins
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Versions (2)
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hide multiple versions |
Export Bibliographic Info |
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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Posted:
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30 Apr 01
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Last Revised:
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26 Nov 03
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784 ( 7,350) |
128
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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05 May 01
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Last Revised:
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10 Jun 01
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27
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128
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| |
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. This perspective explains why, in the 12 th and 13 th centuries, the relatively more peaceful England developed trials by jury, while the less peaceful France relied on state-employed judges for both collecting evidence and making decisions. Despite considerable legal evolution, these initial design choices have persisted for centuries (largely because France remained less peaceful than England), and may 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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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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30 Apr 01
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Last Revised:
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26 Nov 03
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757
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128
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| |
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. This perspective explains why, in the 12th and 13th centuries, the relatively more peaceful England developed trials by jury, while the less peaceful France relied on state-employed judges for both collecting evidence and making decisions. Despite considerable legal evolution, these initial design choices have persisted for centuries (largely because France remained less peaceful than England), and may 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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26.
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The Regulation of Labor
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Juan Carlos Botero American Bar Association - World Justice Project Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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Posted:
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05 Jun 03
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Last Revised:
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07 Jul 08
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729 ( 8,211) |
225
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Juan Carlos Botero American Bar Association - World Justice Project Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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24 Mar 05
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Last Revised:
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07 Jul 08
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0
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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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Juan Carlos Botero American Bar Association - World Justice Project Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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03 Jun 04
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Last Revised:
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07 Jul 08
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0
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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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Juan Carlos Botero American Bar Association - World Justice Project Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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08 Jun 03
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Last Revised:
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07 Jul 08
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66
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225
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| |
Abstract:
We investigate the regulation of labor markets through employment laws, collective bargaining laws, and social security laws in 85 countries. We find that richer countries regulate labor less than poorer countries do, although they have more generous social security systems. The political power of the left is associated with more stringent labor regulations and more generous social security systems. Socialist and French legal origin countries have sharply higher levels of labor regulation than do common law countries, and the inclusion of legal origin wipes out the effect of the political power of the left. Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment, especially of the young. These results are difficult to reconcile with efficiency and political power theories of institutional choice, but are broadly consistent with legal theories, according to which countries have pervasive regulatory styles inherited from the transplantation of legal systems.
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Juan Carlos Botero American Bar Association - World Justice Project Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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05 Jun 03
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Last Revised:
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07 Jul 08
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663
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225
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| |
Abstract:
We investigate the regulation of labor markets through employment laws, collective bargaining laws, and social security laws in 85 countries. We find that richer countries regulate labor less than poorer countries do, although they have more generous social security systems. The political power of the left is associated with more stringent labor regulations and more generous social security systems. Socialist and French legal origin countries have sharply higher levels of labor regulation than do common law countries, and the inclusion of legal origin wipes out the effect of the political power of the left. Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment, especially of the young. These results are difficult to reconcile with efficiency and political power theories of institutional choice, but are broadly consistent with legal theories, according to which countries have pervasive regulatory styles inherited from the transplantation of legal systems.
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27.
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A Survey of Corporate Governance
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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28 Oct 96
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Last Revised:
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12 Jul 00
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554 ( 12,363) |
1,090
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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23 Jun 98
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Last Revised:
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23 Jun 98
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0
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Abstract:
This paper surveys research on corporate governance, with special attention to the importance of legal protection of investor and of ownership concentration in corporate governance systems around the world.
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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28 Oct 96
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Last Revised:
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12 Jul 00
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554
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1,090
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Abstract:
This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.
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28.
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Debt Enforcement Around the World
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Simeon Djankov Ministry of Finance Oliver D. Hart Harvard University - Department of Economics Caralee McLiesh World Bank - International Finance Corporation (IFC) Andrei Shleifer Harvard University - Department of Economics
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Posted:
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21 Dec 06
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Last Revised:
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15 Jun 07
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533 ( 12,997) |
40
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Simeon Djankov Ministry of Finance Oliver D. Hart Harvard University - Department of Economics Caralee McLiesh World Bank - International Finance Corporation (IFC) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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05 Jan 07
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Last Revised:
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15 Jun 07
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33
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40
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Abstract:
We present insolvency practitioners from 88 countries with an identical case of a hotel about to default on its debt, and ask them to describe in detail how debt enforcement against this hotel will proceed in their countries. We use the data on time, cost, and the likely disposition of the assets (preservation as a going concern versus piecemeal sale) to construct a measure of the efficiency of debt enforcement in each country. We identify several characteristics of debt enforcement procedures, such as the structure of appeals and availability of floating charge finance, that influence efficiency. Our measure of efficiency of debt enforcement is strongly correlated with per capita income and legal origin and predicts debt market development across countries. Interestingly, it is also highly correlated with measures of the quality of contract enforcement and public regulation obtained in other studies.
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Simeon Djankov Ministry of Finance Oliver D. Hart Harvard University - Department of Economics Caralee McLiesh World Bank - International Finance Corporation (IFC) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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21 Dec 06
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Last Revised:
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24 May 07
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500
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40
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Abstract:
We present insolvency practitioners from 88 countries with an identical case of a hotel about to default on its debt, and ask them to describe in detail how debt enforcement against this hotel will proceed in their countries. We use the data on time, cost, and the likely disposition of the assets (preservation as a going concern versus piecemeal sale) to construct a measure of the efficiency of debt enforcement in each country. We identify several characteristics of debt enforcement procedures, such as the structure of appeals and availability of floating charge finance, that influence efficiency. Our measure of efficiency of debt enforcement is strongly correlated with per capita income and legal origin and predicts debt market development across countries. Interestingly, it is also highly correlated with measures of the quality of contract enforcement and public regulation obtained in other studies.
bankruptcy, legal origins
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29.
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|
Private Credit in 129 Countries
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|
Simeon Djankov Ministry of Finance Caralee McLiesh World Bank - International Finance Corporation (IFC) Andrei Shleifer Harvard University - Department of Economics
|
|
Posted:
|
|
03 Jan 05
|
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Last Revised:
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16 Jun 06
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519 ( 13,510) |
193
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Simeon Djankov Ministry of Finance Caralee McLiesh World Bank - International Finance Corporation (IFC) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
|
16 Jun 06
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Last Revised:
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16 Jun 06
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44
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193
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Abstract:
We investigate cross-country determinants of private credit, using new data on legal creditor rights and private and public credit registries in 129 countries. We find that both creditor protection through the legal system and information sharing institutions are associated with higher ratios of private credit to GDP, but that the former is relatively more important in the richer countries. An analysis of legal reforms also shows that improvements in creditor rights and in information sharing precede faster credit growth. We also find that creditor rights are extremely stable over time, contrary to the convergence hypothesis. Finally, we find that legal origins are an important determinant of both creditor rights and information sharing institutions.
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Simeon Djankov Ministry of Finance Caralee McLiesh World Bank - International Finance Corporation (IFC) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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03 Jan 05
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Last Revised:
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22 Feb 05
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475
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193
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Abstract:
We investigate cross-country determinants of private credit, using new data on legal creditor rights and private and public credit registries in 129 countries. We find that both creditor protection through the legal system and information sharing institutions are associated with higher ratios of private credit to GDP, but that the former is relatively more important in the richer countries. An analysis of legal reforms also shows that improvements in creditor rights and in information sharing precede faster credit growth. We also find that creditor rights are extremely stable over time, contrary to the convergence hypothesis. Finally, we find that legal origins are an important determinant of both creditor rights and information sharing institutions.
Organizations, markets
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30.
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Sendhil Mullainathan Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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13 Jan 04
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Last Revised:
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19 Jan 04
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512 (13,785)
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75
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Abstract:
We investigate the market for news under two assumptions: that readers hold beliefs that 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. However, on topics where reader beliefs diverge (such as politically divisive issues), newspapers segment the market and slant toward the biases of their own audiences, yet in the aggregate a conscientious reader could get an unbiased perspective. Generally speaking, reader heterogeneity is more important for accuracy in media than competition per se.
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31.
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The Injustice of Inequality
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Jose A. Scheinkman Princeton University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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Posted:
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15 Sep 02
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Last Revised:
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26 Nov 03
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506 ( 14,016) |
58
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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15 Sep 02
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Last Revised:
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15 Sep 02
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20
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58
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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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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Jose A. Scheinkman Princeton University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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15 Sep 02
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Last Revised:
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26 Nov 03
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486
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58
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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.
Inequality, growth, subversion of institutions
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32.
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A Normal Country
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Andrei Shleifer Harvard University - Department of Economics Daniel Treisman University of California, Los Angeles - Department of Political Science
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Posted:
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28 Oct 03
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Last Revised:
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27 Jul 07
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471 ( 15,455) |
17
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Andrei Shleifer Harvard University - Department of Economics Daniel Treisman University of California, Los Angeles - Department of Political Science
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04 Nov 03
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Last Revised:
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27 Jul 07
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44
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17
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Abstract:
During the 1990s, Russia underwent an extraordinary transformation from a communist dictatorship to a multi-party democracy, from a centrally planned economy to a market economy, and from a belligerent adversary of the West to a cooperative partner. Yet a consensus in the US circa 2000 viewed Russia as a disastrous and threatening failure, and the 1990s as a decade of catastrophe for its citizens. Analyzing a variety of economic and political data, we demonstrate a large gap between this perception and the facts. In contrast to the common image, by the late 1990s Russia had become a typical middle-income capitalist democracy.
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Andrei Shleifer Harvard University - Department of Economics Daniel Treisman University of California, Los Angeles - Department of Political Science
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| Posted: |
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28 Oct 03
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Last Revised:
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27 Jul 07
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427
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17
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Abstract:
During the 1990s, Russia underwent an extraordinary transformation from a communist dictatorship to a multi-party democracy, from a centrally planned economy to a market economy, and from a belligerent adversary of the West to a cooperative partner. Yet a consensus in the US circa 2000 viewed Russia as a disastrous and threatening failure, and the 1990s as a decade of catastrophe for its citizens. Analyzing a variety of economic and political data, we demonstrate a large gap between this perception and the facts. In contrast to the common image, by the late 1990s Russia had become a typical middle-income capitalist democracy.
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33.
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Persuasion in Finance
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Sendhil Mullainathan Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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Posted:
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07 Dec 05
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Last Revised:
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11 Jan 06
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467 ( 15,615) |
12
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Sendhil Mullainathan Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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27 Dec 05
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Last Revised:
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27 Dec 05
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25
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12
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Abstract:
Persuasion is a fundamental part of social activity, yet it is rarely studied by economists. We compare the traditional economic model, in which persuasion is communication of objectively valuable information, with a behavioral model, in which persuasion is an effort to fit the message into the audience's already held beliefs. We present a simple formalization of the behavioral model, and compare the two models using data on financial advertising in Money and Business Week magazines over the course of the internet bubble. The evidence on the content of the persuasive messages is broadly consistent with the behavioral model of persuasion.
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Sendhil Mullainathan Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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07 Dec 05
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Last Revised:
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11 Jan 06
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442
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12
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Abstract:
Persuasion is a fundamental part of social activity, yet it is rarely studied by economists. We compare the traditional economic model, in which persuasion is communication of objectively valuable information, with a behavioral model, in which persuasion is an effort to fit the message into the audience's already held beliefs. We present a simple formalization of the behavioral model, and compare the two models using data on financial advertising in Money and Business Week magazines over the course of the internet bubble. The evidence on the content of the persuasive messages is broadly consistent with the behavioral model of persuasion.
advertising, internet bubble, mutual funds
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34.
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Judicial Checks and Balances
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Cristian Pop-Eleches Columbia University - School of International & Public Affairs (SIPA) Andrei Shleifer Harvard University - Department of Economics
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Posted:
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05 Jun 03
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Last Revised:
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08 Apr 04
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443 ( 16,794) |
71
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Cristian Pop-Eleches Columbia University - School of International & Public Affairs (SIPA) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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08 Mar 04
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08 Apr 04
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0
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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 accounts 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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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Cristian Pop-Eleches Columbia University - School of International & Public Affairs (SIPA) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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15 Jun 03
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31 Jul 03
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25
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71
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Abstract:
In the Anglo-American constitutional tradition, judicial checks and balances are often seen as crucial guarantees of freedom. Hayek (1960) distinguishes two ways in which the judiciary provides such checks and balances: judicial independence and constitutional review. We create a new data base 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 accounts 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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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Cristian Pop-Eleches Columbia University - School of International & Public Affairs (SIPA) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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05 Jun 03
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Last Revised:
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08 Mar 04
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418
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71
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Abstract:
In the Anglo-American constitutional tradition, judicial checks and balances are often seen as crucial guarantees of freedom. Hayek (1960) distinguishes two ways in which the judiciary provides such checks and balances: judicial independence and constitutional review. We create a new data base 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 accounts 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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35.
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Does Competition Destroy Ethical Behavior?
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Andrei Shleifer Harvard University - Department of Economics
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Posted:
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31 Jan 04
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Last Revised:
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21 Aug 07
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430 ( 17,463) |
21
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Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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21 Aug 07
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Last Revised:
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21 Aug 07
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55
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21
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Abstract:
Explanations of unethical behavior often neglect the role of competition, as opposed to greed, in assuring its spread. Using the examples of child labor, corruption, excessive' executive pay, corporate earnings manipulation, and commercial activities by universities, this paper clarifies the role of competition in promoting censured conduct. When unethical behavior cuts costs, competition drives down prices and entrepreneurs' incomes, and thereby reduces their willingness to pay for ethical conduct. Nonetheless, I suggest that competition might be good for ethical behavior in the long run, because it promotes growth and raises incomes. Higher incomes raise the willingness to pay for ethical behavior, but may also change what people believe to be ethical for the better.
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Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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31 Jan 04
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Last Revised:
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13 Oct 04
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375
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21
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Abstract:
Explanations of unethical behavior often neglect the role of competition, as opposed to greed, in assuring its spread. Using the examples of child labor, corruption, "excessive" executive pay, corporate earnings manipulation, and commercial activities by universities, this paper clarifies the role of competition in promoting censured conduct. When unethical behavior cuts costs, competition drives down prices and entrepreneurs' incomes, and thereby reduces their willingness to pay for ethical conduct. Nonetheless, I suggest that competition might be good for ethical behavior in the long run, because it promotes growth and raises incomes. Higher incomes raise the willingness to pay for ethical behavior, but may also change what people believe to be ethical for the better.
D41, L31, L51
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36.
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A Case for Quantity Regulation
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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Posted:
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23 Jan 01
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Last Revised:
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26 Nov 03
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407 ( 18,791) |
7
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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24 Mar 01
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Last Revised:
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05 Oct 01
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22
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7
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Abstract:
Contrary to the standard economic advice, many regulations of financial intermediaries, as well as other regulations such as blue laws, fishing rules, zoning restrictions, or pollution controls, take the form of quantity controls rather than taxes. We argue that costs of enforcement are crucial to understanding these choices. When violations of quantity regulations are cheaper to discover than failures to pay taxes, the former can emerge as the optimal instrument for the government, even when it is less attractive in the absence of enforcement costs. This analysis is especially relevant to situations where private enforcement of regulations is crucial.
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Andrei Shleifer Harvard University - Department of Economics Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics
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| Posted: |
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23 Jan 01
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Last Revised:
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26 Nov 03
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385
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5
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Abstract:
Contrary to the standard economic advice, many regulations of financial intermediaries, as well as other regulations such as blue laws, fishing rules, zoning restrictions, or pollution controls, take the form of quantity controls rather than taxes. We argue that costs of enforcement are crucial to understanding these choices. When violations of quantity regulations are cheaper to discover than failures to pay taxes, the former can emerge as the optimal instrument for the government, even when it is less attractive in the absence of enforcement costs. This analysis is especially relevant to situations where private enforcement of regulations is crucial.
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37.
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Law and Finance
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez-de-Silanes affiliation not provided to SSRN Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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27 Sep 96
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Last Revised:
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18 Nov 09
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328 ( 24,558) |
1,886
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez-de-Silanes affiliation not provided to SSRN Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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17 Nov 09
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Last Revised:
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18 Nov 09
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0
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Abstract:
Examines the legal rules governing and providing protection for corporate shareholders and creditors. Since the defining feature of securities is the rights that they bring to their owners, legal rules and their enforcement are a major determinant of the success of corporate finance. A data set pertaining to the rights of investors, and to their enforcement, is statistically analyzed for 49 countries with publicly traded companies. The research suggests that laws vary considerably across countries because of a range of civil and common laws, though common laws offer better protection for investors. German-civil-law and Scandinavian countries have the best quality of law enforcement, French-civil-law systems protect investors least of all and have the least law enforcement, and in general, law enforcement improves with level of income. Countries with poor law enforcement develop substitute measures of investor protection, including mandatory dividends, legal reserve requirements, strong accounting standards and ownership concentration. The study concludes that rights are not inherent in securities, but are dependent upon the legal system. Overall, investors are given a limited amount of rights, and small, diversified shareholders in particular need legal protection to gain economic power. The study implies that countries with poor legal protection for investors often achieve less economic growth and financial development. (CJC)
Legal protection, Shareholders, Investors, Public firms, Legal systems
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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26 Nov 98
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Last Revised:
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27 Nov 98
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0
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Abstract:
This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common-law countries generally have the strongest, and French-civil-law countries the weakest, legal protections of investors, with German- and Scandinavian-civil-law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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27 Sep 96
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Last Revised:
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14 May 00
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328
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1,886
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Abstract:
This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common law countries generally have the best, and French civil law countries the worst, legal protections of investors, with German and Scandinavian civil law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.
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38.
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The Evolution of a Legal Rule
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Anthony Niblett University of Chicago - Law School Richard A. Posner University of Chicago Law School Andrei Shleifer Harvard University - Department of Economics
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Posted:
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19 Mar 08
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Last Revised:
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18 Apr 08
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326 ( 24,745) |
6
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Anthony Niblett University of Chicago - Law School Richard A. Posner University of Chicago Law School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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02 Apr 08
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Last Revised:
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18 Apr 08
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312
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6
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Abstract:
The efficiency of common law rules is central to achieving efficient resource allocation in a market economy. While many theories suggest reasons why judge-made law should tend toward efficient rules, the question whether the common law actually does converge in commercial areas has remained empirically untested. We create a dataset of 465 state-court appellate decisions involving the application of the Economic Loss Rule in construction disputes and track the evolution of law in this area from 1970 to 2005. We find that over this period the law did not converge to any stable resting point and evolved differently in different states. We find that legal evolution is influenced by plaintiffs' claims, the relative economic power of the parties, and nonbinding federal precedent.
Evolution, Legal Rule, Convergence, Tort, Contract
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Anthony Niblett University of Chicago - Law School Richard A. Posner University of Chicago Law School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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19 Mar 08
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Last Revised:
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02 Apr 08
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14
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6
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Abstract:
The efficiency of common law rules is central to achieving efficient resource allocation in a market economy. While many theories suggest reasons why judge-made law should tend toward efficient rules, the question whether the common law actually does converge in commercial areas has remained empirically untested. We create a dataset of 465 state-court appellate decisions involving the application of the Economic Loss Rule in construction disputes and track the evolution of law in this area from 1970 to 2005. We find that over this period the law did not converge to any stable resting point and evolved differently in different states. We find that legal evolution is influenced by plaintiffs' claims, the relative economic power of the parties, and nonbinding federal precedent.
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39.
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Contrarian Investment, Extrapolation, and Risk
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Josef Lakonishok University of Illinois at Urbana-Champaign Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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26 Oct 99
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Last Revised:
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02 Apr 08
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303 ( 27,029) |
593
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Josef Lakonishok University of Illinois at Urbana-Champaign Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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27 Apr 00
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Last Revised:
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17 Jan 02
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303
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593
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Abstract:
For many years, stock market analysts have argued that value strategies outperform the market. These value strategies call for buying stocks that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. While there is some agreement that value strategies produce higher returns, the interpretation of why they do so is more controversial. This paper provides evidence that value strategies yield higher returns because these strategies exploit the mistakes of the typical investor and not because these strategies are fundamentally riskier.
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Josef Lakonishok University of Illinois at Urbana-Champaign Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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26 Oct 99
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Last Revised:
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02 Apr 08
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0
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Abstract:
For many years, scholars and investment professionals have argued that value strategies outperform the market. These value strategies call for buying stocks that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. While there is some agreement that value strategies produce higher retruns, the interpretation of why they do so is more controversial. This paper provides evidence that value strategies yield higher returns because these strategies exploit the suboptimal behavior of the typical investor and not because these strategies are fundamentally riskier.
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40.
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The Limits of Arbitrage
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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16 Jan 97
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Last Revised:
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18 Mar 08
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295 ( 27,888) |
428
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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18 Jun 00
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Last Revised:
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18 Mar 08
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295
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428
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Abstract:
In traditional models, arbitrage in a given security is performed by a large number of diversified investors taking small positions against its mispricing. In reality, however, arbitrage is conducted by a relatively small number of highly specialized investors who take large positions using other people's money. Such professional arbitrage has a number of interesting implications for security pricing, including the possibility that arbitrage becomes ineffective in extreme circumstances, when prices diverge far from fundamental values. The model also suggests where anomalies in financial markets are likely to appear, and why arbitrage fails to eliminate them.
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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16 Jan 97
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Last Revised:
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20 Jan 98
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0
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Abstract:
Textbook arbitrage in financial markets requires no capital and entails no risk. In reality, almost all arbitrage requires capital, and is typically risky. Moreover, professional arbitrage is conducted by a relatively small number of highly specialized investors using other peoples' capital. Such professional arbitrage has a number of interesting implications for security pricing, including the possibility that arbitrage becomes ineffective in extreme circumstances, when prices diverge far from fundamental values. The model also suggests where anomalies in financial markets are likely to appear, and why arbitrage fails to eliminate them.
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41.
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Unstable Banking
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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29 Apr 09
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Last Revised:
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13 May 09
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258 ( 32,468) |
2
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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12 May 09
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Last Revised:
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13 May 09
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77
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2
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Abstract:
We propose a theory of financial intermediaries operating in markets influenced by investor sentiment. In our model, banks make loans, securitize these loans, trade in them, or hold cash. They can also borrow money, using their security holdings as collateral. We embed such banks in a stylized financial market, in which securitized loans may be mispriced, and investigate how banks allocate limited capital among the various activities, as well as how they choose their capital structure. Banks maximize profits, and there are no conflicts of interest between bank shareholders and creditors. The theory explains the cyclical behavior of credit and investment, but also accounts for the fundamental instability of banks operating in financial markets, especially when banks use leverage.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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29 Apr 09
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Last Revised:
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29 Apr 09
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181
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2
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Abstract:
We propose a theory of financial intermediaries operating in markets influenced by investor sentiment. In our model, banks make loans, securitize these loans, trade in them, or hold cash. They can also borrow money, using their security holdings as collateral. We embed such banks in a stylized financial market, in which securitized loans may be mispriced, and investigate how banks allocate limited capital among the various activities, as well as how they choose their capital structure. Banks maximize profits, and there are no conflicts of interest between bank shareholders and creditors. The theory explains the cyclical behavior of credit and investment, but also accounts for the fundamental instability of banks operating in financial markets, especially when banks use leverage.
securitization, leverage, crisis, cycle
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42.
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The Evolution of Precedent
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Nicola Gennaioli Stockholm University - Institute for International Economic Studies (IIES) Andrei Shleifer Harvard University - Department of Economics
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Posted:
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14 Apr 05
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Last Revised:
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25 May 05
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248 ( 33,955) |
6
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Nicola Gennaioli Stockholm University - Institute for International Economic Studies (IIES) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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25 May 05
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Last Revised:
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25 May 05
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20
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6
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Abstract:
We evaluate Richard Posner's famous hypothesis that common law converges to efficient legal rules using a model of precedent setting by appellate judges. Following legal realists, we assume that judicial decisions are subject to personal biases, and that changing precedent is costly to judges. We consider separately the evolution of precedent under judicial overruling of previous decisions, as well as under distinguishing cases based on new material dimensions. Convergence to efficient legal rules occurs only under very special circumstances, but the evolution of precedent over time is on average beneficial under more plausible conditions.
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Nicola Gennaioli Stockholm University - Institute for International Economic Studies (IIES) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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14 Apr 05
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Last Revised:
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25 May 05
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228
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6
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Abstract:
We evaluate Richard Posner's famous hypothesis that common law converges to efficient legal rules using a model of precedent setting by appellate judges. Following legal realists, we assume that judicial decisions are subject to personal biases, and that changing precedent is costly to judges. We consider separately the evolution of precedent under judicial overruling of previous decisions, as well as under distinguishing cases based on new material dimensions. Convergence to efficient legal rules occurs only under very special circumstances, but the evolution of precedent over time is on average beneficial under more plausible conditions.
Precedent, common law
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43.
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Persuasion in Politics
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Andrei Shleifer Harvard University - Department of Economics Kevin M. Murphy University of Chicago
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Posted:
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14 Jan 04
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Last Revised:
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19 Mar 09
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244 ( 34,556) |
14
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Kevin M. Murphy University of Chicago Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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31 Jan 04
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03 Feb 04
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25
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14
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Abstract:
We present a model of the creation of social networks, such as political parties, trade unions, religious coalitions, or political action committees, through discussion and mutual persuasion among their members. The key idea is that people are influenced by those inside their network, but not by those outside. Once created, networks can be 'rented out' to politicians who seek votes and support for their initiatives and ideas, which may have little to do with network members' core beliefs. In this framework, political competition does not lead to convergence of party platforms to the views of the median voter. Rather, parties separate their messages and try to isolate their members to prevent personal influence from those in the opposition.
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Andrei Shleifer Harvard University - Department of Economics Kevin M. Murphy University of Chicago
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| Posted: |
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14 Jan 04
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Last Revised:
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19 Mar 09
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219
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14
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Abstract:
We present a model of the creation of social networks, such as political parties, trade unions, religious coalitions, or political action committees, through discussion and mutual persuasion among their members. The key idea is that people are influenced by those inside their network, but not by those outside. Once created, networks can be rented out to politicians who seek votes and support for their initiatives and ideas, which may have little to do with network members' core beliefs. In this framework, political competition does not lead to convergence of party platforms to the views of the median voter. Rather, parties separate their messages and try to isolate their members to prevent personal influence from those in the opposition.
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44.
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Will the Sovereign Debt Market Survive?
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Andrei Shleifer Harvard University - Department of Economics
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Posted:
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13 Feb 03
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Last Revised:
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21 Jul 03
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233 ( 36,297) |
13
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Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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13 Feb 03
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Last Revised:
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13 Feb 03
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26
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13
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Abstract:
Economic theory and evidence from a variety of debt markets shed light on current reform proposals concerning emerging market debt. Debt markets, including the U.S. municipal bond market, generally function best when the rights of creditors are protected most effectively. Since current IMF reform proposals significantly emasculate creditor rights, they are likely to have an adverse effect on the flow of new funds to sovereign borrowers.
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Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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31 Mar 03
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Last Revised:
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21 Jul 03
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207
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12
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Abstract:
Economic theory and evidence from a variety of debt markets shed light on current reform proposals concerning emerging market debt. Debt markets, including the U.S. municipal bond market, generally function best when the rights of creditors are protected most effectively. Since current IMF reform proposals significantly emasculate creditor rights, they are likely to have an adverse effect on the flow of new funds to sovereign borrowers.
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45.
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The Curley Effect: The Economics of Shaping the Electorate
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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Posted:
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09 May 02
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Last Revised:
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21 Nov 05
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202 ( 42,093) |
11
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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28 Dec 04
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Last Revised:
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21 Nov 05
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21
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4
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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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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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17 May 02
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Last Revised:
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18 May 02
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21
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8
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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. Boston as a consequence stagnated, but Curley kept winning elections. We present a model of the Curley effect, in which inefficient redistributive policies are sought not by interest groups protecting their rents, but by incumbent politicians trying to shape the electorate through emigration of their opponents or reinforcement of class identities. The model sheds light on ethnic politics in the United States and abroad, as well as on class politics in many countries including Britain.
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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09 May 02
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Last Revised:
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26 Nov 03
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160
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8
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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. Boston as a consequence stagnated, but Curley kept winning elections. We present a model of the Curley effect, in which inefficient redistributive policies are sought not by interest groups protecting their rents, but by incumbent politicians trying to shape the electorate through emigration of their opponents or reinforcement of class identities. The model sheds light on ethnic politics in the United States and abroad, as well as on class politics in many countries including Britain.
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46.
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Simeon Djankov Ministry of Finance Tim Ganser Harvard University - Department of Economics Caralee McLiesh World Bank - International Finance Corporation (IFC) Rita Maria Ramalho World Bank Group - Private Sector Advisory Services Department Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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11 Feb 08
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Last Revised:
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03 Apr 09
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201 (42,296)
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13
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Abstract:
We present new data on effective corporate income tax rates in 85 countries in 2004. The data come from a survey, conducted jointly with PricewaterhouseCoopers, of all taxes imposed on "the same" standardized mid-size domestic firm. In a cross-section of countries, our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. Corporate tax rates are correlated with investment in manufacturing but not services, as well as with the size of the informal economy. The results are robust to the inclusion of many controls.
corporate taxes, investment, entrepreneurship
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47.
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Legal Determinants of External Finance
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Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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12 Mar 97
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Last Revised:
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26 Nov 03
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177 ( 48,096) |
1,114
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Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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27 Jun 97
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Last Revised:
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26 Nov 03
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0
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Abstract:
Using a sample of 49 countries, we show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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12 Mar 97
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Last Revised:
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09 May 00
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177
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1,114
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| |
Abstract:
Using a sample of 49 countries, we show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.
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48.
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Coarse Thinking and Persuasion
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Andrei Shleifer Harvard University - Department of Economics Sendhil Mullainathan Harvard University - Department of Economics Joshua Schwartzstein Harvard University - Department of Economics
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Posted:
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20 Nov 06
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Last Revised:
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02 May 07
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155 ( 54,645) |
10
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Sendhil Mullainathan Harvard University - Department of Economics Joshua Schwartzstein Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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06 Dec 06
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Last Revised:
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02 May 07
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17
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10
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Abstract:
We present a model of coarse thinking, in which individuals group situations into categories, and transfer the informational content of a given message from situations in a category where it is useful to those where it is not. The model explains how uninformative messages can be persuasive, particularly in low involvement situations, and how objectively informative messages can be dropped by the persuader without the audience assuming the worst. The model sheds light on product branding, the structure of product attributes, and several puzzling aspects of mutual fund advertising.
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Andrei Shleifer Harvard University - Department of Economics Sendhil Mullainathan Harvard University - Department of Economics Joshua Schwartzstein Harvard University - Department of Economics
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| Posted: |
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20 Nov 06
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Last Revised:
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20 Nov 06
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138
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10
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| |
Abstract:
We present a model of coarse thinking, in which individuals group situations into categories, and transfer the informational content of a given message from situations in a category where it is useful to those where it is not. The model explains how uninformative messages can be persuasive, particularly in low involvement situations, and how objectively informative messages can be dropped by the persuader without the audience assuming the worst. The model sheds light on product branding, the structure of product attributes, and several puzzling aspects of mutual fund advertising.
advertising, branding, marketing
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49.
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Rafael La Porta Tuck School of Business at Dartmouth Josef Lakonishok University of Illinois at Urbana-Champaign Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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02 Sep 00
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Last Revised:
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19 Mar 08
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151 (56,012)
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97
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Abstract:
This paper examines the hypothesis that the superior return to so-called value stocks is the result of expectational errors made by investors. We study stock price reactions around earnings announcements for value and glamour stocks over a 5 year period after portfolio formation. The announcement returns suggest that a significant portion of the return difference between value and glamour stocks is attributable to earnings surprises that are systematically more positive for value stocks. The evidence is inconsistent with a risk-based explanation for the return differential.
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50.
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Population and Regulation
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Casey B. Mulligan University of Chicago Andrei Shleifer Harvard University - Department of Economics
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Posted:
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13 Jan 04
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Last Revised:
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02 Apr 08
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139 ( 60,417) |
12
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Casey B. Mulligan University of Chicago Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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31 Jan 04
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Last Revised:
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03 Feb 04
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26
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12
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Abstract:
We present a model of efficient regulation along the lines of Demsetz (1967). In this model, setting up and running regulatory institutions takes a fixed cost, and therefore jurisdictions with larger populations affected by a given regulation are more likely to have them. Consistent with the model, we find that higher population U.S. states have more pages of legislation and adopt particular laws earlier in their history. We also find that specific types of regulation, including the regulation of entry, the regulation of labor, and the military draft are more extensive in countries with larger populations. Overall, the data show that population is an empirically important determinant of regulation.
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Casey B. Mulligan University of Chicago Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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13 Jan 04
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Last Revised:
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02 Apr 08
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113
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12
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Abstract:
We present a model of efficient regulation along the lines of Demsetz (1967). In this model, setting up and running regulatory institutions takes a fixed cost, and therefore jurisdictions with larger populations affected by a given regulation are more likely to have them. Consistent with the model, we find that higher population U.S. states have more pages of legislation and adopt particular laws earlier in their history. We also find that specific types of regulation, including the regulation of entry, the regulation of labor, and the military draft are more extensive in countries with larger populations. Overall, the data show that population is an empirically important determinant of regulation.
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51.
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A Model of Investor Sentiment
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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19 Feb 97
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Last Revised:
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20 Mar 08
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121 ( 67,874) |
487
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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08 Jul 00
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Last Revised:
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20 Mar 08
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121
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487
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Abstract:
Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earnings announcements; and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment that is, of how investors form beliefs that is consistent with the empirical findings. The model is based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values.
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Nicholas Barberis National Bureau of Economic Research (NBER) Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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19 Feb 97
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Last Revised:
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08 Jan 98
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0
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| |
Abstract:
Recent empirical research inn finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earnings announcements; and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment - that is, of how investors form beliefs - that is consistent with the empirical findings. The model is based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values.
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52.
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Aron Balas National Bureau of Economic Research (NBER) Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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12 Feb 08
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Last Revised:
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12 Feb 08
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120 (68,347)
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7
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Abstract:
Djankov et al. (2003a) propose and measure for 109 countries in the year 2000 an index of formalism of legal procedure for two simple disputes: eviction of a non-paying tenant and collection of a bounced check. For a sub-sample of 40 countries, we compute this index every year starting in 1950, which allows us to study the evolution of legal rules. We find that between 1950 and 2000, the formalism of legal procedure did not converge, and possibly diverged, between common law and French civil law countries. At least in this specific area of law, the results are inconsistent with the hypothesis that national legal systems are converging, and support the view that legal origins exert long lasting influence on legal rules.
common law, civil law, legal procedure, formalism
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53.
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State Versus Private Ownership
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Andrei Shleifer Harvard University - Department of Economics
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Posted:
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|
09 Sep 98
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Last Revised:
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26 Nov 03
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120 ( 68,347) |
127
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Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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10 Jul 00
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Last Revised:
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10 Jul 00
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120
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127
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Abstract:
Private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong. In essence, this is the case for capitalism over socialism, explaining the dynamic vitality' of free enterprise. The great economists of the 1930s and 1940s failed to see the dangers of socialism in part because they focused on the role of prices under socialism and capitalism and ignored the enormous importance of ownership as the source of capitalist incentives to innovate. Moreover, many of the concerns that private firms fail to address social goals' can be addressed through government contacting and regulation without resort to government ownership. The case for private provision only becomes stronger when competition between suppliers, reputational mechanisms, and the possibility of provision by private not-for-profit firms, as well as political patronage and corruption, are brought into play.
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Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
|
09 Sep 98
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Last Revised:
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26 Nov 03
|
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0
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| |
Abstract:
Private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong. In essence, this is the case for capitalism over socialism, explaining the dynamic vitality of free enterprise. The great economists of the 1930s and 1940s failed to see the dangers of socialism in part because they focused on the role of prices under socialism and capitalism and ignored the enormous importance of ownership as the source of capitalist incentives to innovate. Moreover, many of the concerns that private firms fail to address social goals can be addressed through government contacting and regulation without resort to government ownership. The case for private provision only becomes stronger when competition between suppliers, reputational mechanisms, and the possibility of provision by private not-for-profit firms, as well as political patronage and corruption, are brought into play.
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54.
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Philippe Aghion Harvard University - Department of Economics Yann Algan Universite Paris I Pantheon-Sorbonne - CNRS-EUREQUA Pierre Cahuc National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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08 Jan 09
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Last Revised:
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18 Jan 09
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119 (68,819)
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7
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| |
Abstract:
In a cross-section of countries, government regulation is strongly negatively correlated with social capital. We document this correlation, and present a model explaining it. In the model, distrust creates public demand for regulation, while regulation in turn discourages social capital accumulation, leading to multiple equilibria. A key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt. We test this and other implications of the model using country- and individual-level data on social capital and beliefs about government's role, as well as on changes in beliefs and in trust during the transition from socialism.
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55.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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26 Jul 00
|
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Last Revised:
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17 Apr 08
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117 (69,775)
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28
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Abstract:
Recent research has documented large differences between countries in ownership concentration in publicly traded firms, in the breadth and depth of capital markets, in dividend policies, and in the access of firms to external finance. We suggest that there is a common element to the explanations of these differences, namely how well investors, both shareholders and creditors, are protected by law from expropriation by the managers and controlling shareholders of firms. We describe the differences in laws and the effectiveness of their enforcement across countries, discuss the possible origins of these differences, summarize their consequences, and assess potential strategies of corporate governance reform. We argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems.
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56.
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Rafael La Porta Tuck School of Business at Dartmouth Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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23 Nov 08
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Last Revised:
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09 Apr 09
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112 (72,329)
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1
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Abstract:
In developing countries, informal firms (those that are not registered with the government) account for about half of all economic activity. We consider three broad views of the role of such firms in economic development. According to the romantic view, these firms would become the engine of economic growth if not stopped by government regulation. According to the parasite view, informal firms, by avoiding taxes and regulations, unfairly compete with the more efficient formal firms and, by taking away their market share, undermine economic progress. According to the dual view, informal firms are highly inefficient, do not pose much threat to the formal firms, but also do not contribute to economic growth, which is driven by the efficient formal firms. Using data from World Bank firm level surveys, we find that informal firms are small and extremely unproductive, compared even to the small formal firms, and especially relative to the larger formal firms. Compared to the informal firms, formal ones are run by much better educated managers. As a consequence, they use more capital, have different customers, market their products, and use more external finance. Hardly any formal firms had ever operated informally. This evidence is inconsistent with the romantic and parasite views, but supports the dual view. In this "Walmart" theory of economic development, growth comes from the creation of the highly productive formal firms. Informal firms keep millions of people alive, but disappear over time.
dual economy, productivity, registration
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57.
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Simon H. Johnson Massachusetts Institute of Technology (MIT) - Entrepreneurship Center Daniel Kaufmann The Brookings Institution Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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09 Apr 08
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Last Revised:
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13 Apr 08
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109 (73,836)
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8
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Abstract:
The economies of Eastern Europe and the former Soviet Union (FSU) escaped communism with a heavy burden. Despite the collapse of central planning, these economies continued to suffer from heavy political control of economic activity, reflected in massive subsidization of state firms, heavy regulation of entry and operations of private firms, as well as punitive taxation by the government and - separately - by its agents (corruption). Such politicization of the economy had to be reduced significantly for small business formation and growth to begin. In recent years, some countries have succeeded in depoliticizing their economies much better than others. As this paper shows, these are the countries that also had the best growth records.
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58.
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J. Bradford DeLong University of California, Berkeley Andrei Shleifer Harvard University - Department of Economics Lawrence H. Summers Harvard University Robert Waldmann Universita di Roma Tor Vergata
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| Posted: |
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25 Jun 04
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Last Revised:
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24 Aug 08
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106 (75,449)
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93
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Abstract:
No abstract is available for this paper.
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59.
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Judicial Fact Discretion
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Nicola Gennaioli Stockholm University - Institute for International Economic Studies (IIES) Andrei Shleifer Harvard University - Department of Economics
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Posted:
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03 Nov 06
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Last Revised:
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13 Apr 07
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105 ( 75,991) |
11
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Nicola Gennaioli Stockholm University - Institute for International Economic Studies (IIES) Andrei Shleifer Harvard University - Department of Economics
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20 Nov 06
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Last Revised:
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13 Apr 07
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12
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10
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Abstract:
Does it matter for the outcome of a trial who the judge is? Legal practitioners typically believe that the answer is yes, yet legal scholarship sees trial judges as predictably enforcing established law. Following Frank (1951), we suggest here that trial judges exercise considerable discretion in finding facts, which explains the practitioners' perspective and other aspects of trials. We identify two motivations for the exercise of such discretion: judicial policy preferences and judges' aversion to reversal on appeal when the law is unsettled. In the latter case, judges exercising fact discretion find the facts that fit the settled precedents, even when they have no policy preferences. In a standard model of a tort, judicial fact discretion leads to setting of damages unpredictable from true facts of the case but predictable from knowledge of judicial preferences, it distorts the number and severity of accidents, and generates welfare losses. It also raises the incidence of litigation relative to settlement, and encourages litigants to take extreme positions in court, especially in new and complex disputes where the law is unsettled.
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Nicola Gennaioli Stockholm University - Institute for International Economic Studies (IIES) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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03 Nov 06
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Last Revised:
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03 Nov 06
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93
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11
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Abstract:
Does it matter for the outcome of a trial who the judge is? Legal practitioners typically believe that the answer is yes, yet legal scholarship sees trial judges as predictably enforcing established law. Following Frank (1951), we suggest here that trial judges exercise considerable discretion in finding facts, which explains the practitioners' perspective and other aspects of trials. We identify two motivations for the exercise of such discretion: judicial policy preferences and judges' aversion to reversal on appeal when the law is unsettled. In the latter case, judges exercising fact discretion find the facts that fit the settled precedents, even when they have no policy preferences. In a standard model of a tort, judicial fact discretion leads to setting of damages unpredictable from true facts of the case but predictable from knowledge of judicial preferences, it distorts the number and severity of accidents, and generates welfare losses. It also raises the incidence of litigation relative to settlement, and encourages litigants to take extreme positions in court, especially in new and complex disputes where the law is unsettled.
fact finding, judicial bias, judicial discretion
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60.
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Randall Morck University of Alberta - Department of Finance and Management Science Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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09 Jun 04
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Last Revised:
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09 Jun 04
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100 (79,290)
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23
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Abstract:
We investigate the relation between management ownership and corporate performance, as measured by Tobin`s Q. In a cross-section of Fortune 500 firms, Tobin`s Q first increases and then declines as board of directors holdings rise. For older firms there is weak evidence that Q is lower when a firm is run by a member of the founding family than when it is run by an officer unrelated to the founder.
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61.
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Conscription as Regulation
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Casey B. Mulligan University of Chicago Andrei Shleifer Harvard University - Department of Economics
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Posted:
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14 Jun 04
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Last Revised:
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02 Apr 08
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95 ( 81,679) |
11
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Casey B. Mulligan University of Chicago Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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04 Jul 04
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Last Revised:
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04 Jul 04
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20
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11
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Abstract:
We examine the practice of military conscription around the world from the perspective of two standard theories, and a new one, which emphasizes the fixed cost of introducing and administering the draft as a deterrent to its use. We find that, holding the relative size of the military constant, higher population countries are more likely to use the draft. We also find that French legal origin countries, which we see as facing lower fixed and variable administrative costs, are more likely to draft than are common law countries. Conscription does not seem to be influenced by democracy, and is influenced by the deadweight costs of taxation only in countries with very large militaries. The results suggest that fixed costs of introducing and administering new regulations may be an important determinant of their use.
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Casey B. Mulligan University of Chicago Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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14 Jun 04
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Last Revised:
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02 Apr 08
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75
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11
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Abstract:
We examine the practice of military conscription around the world from the perspective of two standard theories, and a new one, which emphasizes the fixed cost of introducing and administering the draft as a deterrent to its use. We find that, holding the relative size of the military constant, higher population countries are more likely to use the draft. We also find that French legal origin countries, which we see as facing lower fixed and variable administrative costs, are more likely to draft than are common law countries. Conscription does not seem to be influenced by democracy, and is influenced by the deadweight costs of taxation only in countries with very large militaries. The results suggest that fixed costs of introducing and administering new regulations may be an important determinant of their use.
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62.
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Andrei Shleifer Harvard University - Department of Economics Lawrence H. Summers Harvard University
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| Posted: |
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27 Apr 00
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Last Revised:
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15 Apr 08
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93 (82,923)
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139
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Abstract:
The paper questions the common view that share price increases of firms involved in hostile takeovers measure efficiency gains from acquisitions. Even if such gains exist, most of the increase in the combined value of the target and the acquirer is likely to come from stakeholder wealth losses, such as declines in value of subcontractors` firm-specific capital or employees` human capital. The use of event studies to gauge wealth creation in takeovers is unjustified. The paper also suggests a theory of managerial behavior, in which hiring and entrenching trustworthy managers enables shareholders to commit to upholding implicit contracts with stakeholders. Hostile takeovers are an innovation allowing shareholders to renege on such contracts ex post, against managers` will. On this view, shareholder gains are redistributions from stakeholders, and can in the long run result in deterioration of trust necessary for the functioning of the corporation.
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63.
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The Quality of Government
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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18 Oct 98
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Last Revised:
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26 Nov 03
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90 ( 84,851) |
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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18 May 99
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Last Revised:
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26 Nov 03
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0
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Abstract:
We investigate empirically the determinants of the quality of governments in a large cross-section of countries. We assess government performance using measures of government intervention, public sector efficiency, public good provision, size of government, and political freedom. We find that countries that are poor, close to the equator, ethnolinguistically heterogeneous, use French or socialist laws, or have high proportions of Catholics or Muslims exhibit inferior government performance. We also find that the larger governments tend to be the better performing ones. The importance of historical factors in explaining the variation in government performance across countries sheds light on the economic, political, and cultural theories of institutions.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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18 Oct 98
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Last Revised:
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03 Jul 00
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90
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Abstract:
We investigate empirically the determinants of the quality of governments in a large cross-section of countries. We assess government performance using measures of government intervention, public sector efficiency, public good provision, size of government, and political freedom. We find that countries that are poor, close to the equator, ethnolinguistically heterogeneous, use French of socialist laws, or have high proportions of Catholics or Muslims exhibit inferior government performance. We also find that the larger governments tend to be the better performing ones. The importance of historical factors in explaining the variation in government performance across countries sheds light on the economic, political, and cultural theories of institutions.
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64.
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Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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28 Mar 97
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Last Revised:
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08 May 00
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87 (86,852)
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139
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Abstract:
Several authors suggest that trust is an important determinant of cooperation between strangers in a society, and therefore of performance of social institutions. We argue that trust should be particularly important for the performance of large organizations. In a cross-section of countries, evidence on government performance, participation in civic and professional societies, importance of large firms, and the performance of social institutions more generally supports this hypothesis. Moreover, trust is lower in countries with dominant hierarchical religions, which may have deterred networks of cooperation trust hold up remarkably well on a cross-section of countries.
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65.
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Randall Morck University of Alberta - Department of Finance and Management Science Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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27 Apr 00
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Last Revised:
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07 Jan 02
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86 (87,535)
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38
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Abstract:
Compared to an average Fortune 500 firm, a target of a hostile takeover is smaller, older, and has a lower Tobin's Q, invests less of its income, and is growing more slowly. The low Q seems to be an industry-specific rather than a firm-specific effect. In addition, a hostile target is less likely to be run by a member of the founding family, and has lower officer ownership, than the average firm. In contrast, a target of a friendly acquisitions is smaller and younger than an average Fortune 500 firm, and has comparable Tobin's Qs and most other financial characteristics. Friendly targets are more likely to be run by a member of the founding family, and have higher officer ownership, than the average firm. The decision of a CEO with a large stake and/or with a relationship to a founder to retire often precipitates a friendly acquisition. These results suggest that the motive for a takeover often determines its mood. Thus disciplinary takeovers are more often hostile, and synergistic ones are more often friendly.
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66.
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Litigation and Regulation
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Joshua Schwartzstein Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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Posted:
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20 Feb 09
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Last Revised:
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26 Feb 09
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83 ( 89,581) |
2
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Joshua Schwartzstein Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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26 Feb 09
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Last Revised:
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26 Feb 09
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20
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2
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Abstract:
We ask whether regulation can usefully supplement litigation in a model of optimal social control of harmful externalities. In our model, firms choose activity levels in addition to precautions. In contrast to the usual analysis, we assume that social returns to activity are higher than private returns before taking harmful externalities into account. We also assume that both courts and regulators make errors in assessing whether it is efficient for a given firm to take precautions. We show that regulation can, in some circumstances, improve resource allocation. Regulatory preemption of litigation may be efficient when social returns to activity exceed the expected harm that could result from a firm taking too few precautions. The optimal structure of law enforcement is influenced by the divergence between private and social returns to activity as well as the competence of regulators and courts.
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Joshua Schwartzstein Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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20 Feb 09
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Last Revised:
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20 Feb 09
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63
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2
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Abstract:
We ask whether regulation can usefully supplement litigation in a model of optimal social control of harmful externalities. In our model, firms choose activity levels in addition to precautions. In contrast to the usual analysis, we assume that social returns to activity are higher than private returns before taking harmful externalities into account. We also assume that both courts and regulators make errors in assessing whether it is efficient for a given firm to take precautions. We show that regulation can, in some circumstances, improve resource allocation. Regulatory preemption of litigation may be efficient when social returns to activity exceed the expected harm that could result from a firm taking too few precautions. The optimal structure of law enforcement is influenced by the divergence between private and social returns to activity as well as the competence of regulators and courts.
regulation, torts, product liability
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67.
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Simeon Djankov Ministry of Finance Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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29 Jan 09
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Last Revised:
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01 Nov 09
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76 (94,778)
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1
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Abstract:
We collect data on the rules and practices of financial and conflict disclosure by politicians in 175 countries. Although two thirds of the countries have some disclosure laws, less than a third make disclosures available to the public. Disclosure is more extensive in richer and more democratic countries. Disclosure is correlated with lower perceived corruption when it is public, when it identifies sources of income and conflicts of interest, and when a country is a democracy.
Transparency, Corruption
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68.
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Josef Lakonishok University of Illinois at Urbana-Champaign Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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27 Apr 00
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Last Revised:
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23 Jan 02
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75 (95,579)
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17
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Abstract:
This paper uses a new data set of quarterly portfolio holdings of 769 all-equity pension funds between 1985 and 1989 to evaluate the potential effect of their trading on stock prices. We address two aspects of trading by money managers: herding, which refers to buying (selling) the same stocks as other managers buy (sell) at the same time; and positive-feedback trading, which refers to buying winners and selling losers. These two aspects of trading are commonly a part of the argument that institutions destabilize stock prices. At the level of individual stocks at quarterly frequencies, we find no evidence of substantial herding or positive-feedback trading by pension fund managers, except in small stocks. Also, there is no strong cross-sectional correlation between changes in pension funds' holdings of a stock and its abnormal return.
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69.
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J. Bradford DeLong University of California, Berkeley Andrei Shleifer Harvard University - Department of Economics Lawrence H. Summers Harvard University Robert Waldmann Universita di Roma Tor Vergata
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| Posted: |
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07 Jul 04
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Last Revised:
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15 Apr 08
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65 (104,097)
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5
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Abstract:
The claim that financial markets are efficient is backed by an implicit argument that misinformed "noise traders" can have little influence on asset prices in equilibrium. If noise traders` beliefs are sufficiently different from those of rational agents to significantly affect prices, then noise traders will buy high and sell low. They will then lose money relative to rational investors and eventually be eliminated from the market. We present a simple overlapping-generations model of the stock market in which noise traders with erroneous and stochastic beliefs (a) significantly affect prices and (b) earn higher returns than do rational investors. Noise traders earn high returns because they bear a large amount of the market risk which the presence of noise traders creates in the assets that they hold: their presence raises expected returns because sophisticated investors dislike bearing the risk that noise traders may be irrationally pessimistic and push asset prices down in the future. The model we present has many properties that correspond to the "Keynesian" view of financial markets. (i) Stock prices are more volatile than can be justified on the basis of news about underlying fundamentals. (ii) A rational investor concerned about the short run may be better off guessing the guesses of others than choosing an appropriate P portfolio. (iii) Asset prices diverge frequently but not permanently from average values, giving rise to patterns of mean reversion in stock and bond prices similar to those found directly by Fama and French (1987) for the stock market and to the failures of the expectations hypothesis of the term structure. (iv) Since investors in assets bear not only fundamental but also noise trader risk, the average prices of assets will be below fundamental values; one striking example of substantial divergence between market and fundamental values is the persistent discount on closed-end mutual funds, and a second example is Mehra and Prescott`s (1986) finding that American equities sell for much less than the consumption capital asset pricing model would predict. (v) The more the market is dominated by short-term traders as opposed to long-term investors, the poorer is its performance as a social capital allocation mechanism. (vi) Dividend policy and capital structure can matter for the value of the firm even abstracting from tax considerations. And (vii) making assets illiquid and thus no longer subject to the whims of the market -- as is done when a firm goes private -- may enhance their value.
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70.
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Josef Lakonishok University of Illinois at Urbana-Champaign Andrei Shleifer Harvard University - Department of Economics Richard H. Thaler University of Chicago - Booth School of Business Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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08 Jan 08
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Last Revised:
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08 Jan 08
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57 (111,532)
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90
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Abstract:
No abstract is available for this paper.
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71.
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Giacomo A. M. Ponzetto CREI - Universitat Pompeu Fabra Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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15 May 06
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Last Revised:
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19 Jun 06
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52 (116,464)
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31
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Abstract:
Across countries, education and democracy are highly correlated. We motivate empirically and then model a causal mechanism explaining this correlation. In our model, schooling teaches people to interact with others and raises the benefits of civic participation, including voting and organizing. In the battle between democracy and dictatorship, democracy has a wide potential base of support but offers weak incentives to its defenders. Dictatorship provides stronger incentives to a narrower base. As education raises the benefits of civic participation, it raises the support for more democratic regimes relative to dictatorships. This increases the likelihood of democratic revolutions against dictatorships, and reduces that of successful anti-democratic coups.
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72.
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Kevin M. Murphy University of Chicago Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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11 Jun 07
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Last Revised:
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11 Jun 07
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51 (117,473)
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54
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Abstract:
No abstract is available for this paper.
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73.
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The Proper Scope of Government: Theory and an Application to Prisons
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Oliver D. Hart Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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08 Jan 97
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Last Revised:
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16 May 00
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51 (117,473) |
137
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Oliver D. Hart Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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28 Apr 98
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Last Revised:
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17 Jun 98
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0
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Abstract:
When should a government provide a service in-house, and when should it contract out provision? We develop a model in which the provider can invest in improving the quality of service or reducing cost. If contracts are incomplete, the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee has. However, the private contractor's incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on non-contractible quality. The model is applied to understanding the costs and benefits of prison privatization.
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Oliver D. Hart Harvard University - Department of Economics Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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08 Jan 97
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Last Revised:
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16 May 00
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51
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137
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| |
Abstract:
When should a government provide a service inhouse and when should it contract out provision? We develop a model in which the provider can invest in improving the quality of service or reducing cost. If contracts are incomplete, the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee. However, the private contractor's incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on non-contractible quality. The model is applied to understanding the costs and benefits of prison privatization.
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74.
|
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Not-For-Profit Entrepreneurs
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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Posted:
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|
26 Dec 98
|
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Last Revised:
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06 Mar 06
|
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50 (118,524) |
47
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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26 Jul 00
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Last Revised:
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26 Nov 03
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0
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| |
Abstract:
Entrepreneurs who start new firms may choose not-for-profit status as a means of committing to soft incentives. Such incentives protect donors, volunteers, consumers and employees from ex post expropriation of profits by the entrepreneur. We derive conditions under which completely self-interested entrepreneurs opt for not-for-profit status, despite the fact that this status limits their ability to enjoy the profits of their enterprises. When entrepreneurs have a taste for producing high quality products, the incentives are even softer, and, moreover, non-profit status can serve as a signal of that taste. We also show that even in the absence of tax advantages, unrestricted donations would flow to non-profits rather than for-profit firms because donations have more significant influence on the decisions of the non-profits.
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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26 Dec 98
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Last Revised:
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06 Mar 06
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50
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47
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| |
Abstract:
Entrepreneurs who start new firms may choose not-for-profit status as a means of committing to soft incentives. Such incentives protect donors, volunteers, consumers and employees from ex post expropriation of profits by the entrepreneur. We derive conditions under which completely self-interested entrepreneurs opt for not-for-profit status, despite the fact that this status limits their ability to enjoy the profits of their enterprises. When entrepreneurs have a taste for producing high quality products, the incentives are even softer, and, moreover, non-profit status can serve as a signal of that taste. We also show that even in the absence of tax advantages, unrestricted donations would flow to non-profits rather than for-profit firms because donations have more significant influence on the decisions of the non-profits.
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75.
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Kevin M. Murphy University of Chicago Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
|
05 Jul 04
|
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Last Revised:
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05 Jul 04
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48 (120,721)
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174
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| |
Abstract:
A country's most talented people typically organize production by others, so they can spread their ability advantage over a larger scale. When they start firms, they innovate and foster growth, but when they become rent seekers, they only redistribute wealth and reduce growth. Occupational choice depends on returns to ability and to scale in each sector, on market size, and on compensation contracts. In most countries, rent seeking rewards talent more than entrepreneurship does, leading to stagnation. Our evidence shows that countries with a higher proportion of engineering college majors grow faster; whereas countries with a higher proportion of law concentrators grow slower.
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76.
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Family Firms
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Mike C. Burkart Stockholm School of Economics - Department of Finance Fausto Panunzi Bocconi University - Department of Economics (DEP) Andrei Shleifer Harvard University - Department of Economics
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07 Feb 02
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18 Oct 03
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126
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Mike C. Burkart Stockholm School of Economics - Department of Finance Fausto Panunzi Bocconi University - Department of Economics (DEP) Andrei Shleifer Harvard University - Department of Economics
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18 Oct 03
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18 Oct 03
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Abstract:
We present a model of succession in a firm 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 float 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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Mike C. Burkart Stockholm School of Economics - Department of Finance Fausto Panunzi Bocconi University - Department of Economics (DEP) Andrei Shleifer Harvard University - Department of Economics
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21 Mar 02
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02 Apr 02
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20
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126
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Abstract:
We present a model of succession in a firm controlled and managed by its founder. The founder decides between hiring a professional manager or leaving management to his heir, as well as on how much, if any, of the shares to float 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. Specifically, we show that, in legal regimes that successfully limit the expropriation of minority shareholders, the widely held professionally managed corporation emerges as the equilibrium outcome. In legal regimes with intermediate protection, management is delegated to a professional, but the family stays on as large shareholders to monitor the manager. In legal regimes with the weakest protection, the founder designates his heir to manage and ownership remains inside the family. 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.
Corporate governance, law and finance
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Mike C. Burkart Stockholm School of Economics - Department of Finance Fausto Panunzi Bocconi University - Department of Economics (DEP) Andrei Shleifer Harvard University - Department of Economics
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07 Feb 02
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Last Revised:
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22 May 02
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28
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126
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Abstract:
We present a model of succession in a firm controlled and managed by its founder. The founder decides between hiring a professional manager or leaving management to his heir, as well as on how much, if any, of the shares to float 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. Specifically, we show that, in legal regimes that successfully limit the expropriation of minority shareholders, the widely held professionally managed corporation emerges as the equilibrium outcome. In legal regimes with intermediate protection, management is delegated to a professional, but the family stays on as large shareholders to monitor the manager. In legal regimes with the weakest protection, the founder designates his heir to manage and ownership remains inside the family. 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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77.
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Randall Morck University of Alberta - Department of Finance and Management Science Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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17 May 00
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17 May 00
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44 (125,186)
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103
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We examine performance and management characteristics of Fortune 500 firms experiencing one of three types of control change: internally precipitated management turnover, hostile takeover, and friendly takeover. We find that firms experiencing internally precipitated management turnover perform poorly relative to other firms in their industries, but are not concentrated in poorly performing industries. In contrast, targets of hostile takeovers are concentrated in troubled industries. There is also weaker evidence that hostile takeover targets underperform their industry peers. We interpret this evidence as consistent with the idea that the board of directors is capable of firing managers whose leadership leads to poor performance relative to industry, but that an external challenge in the form of a hostile takeover is often required when the whole industry is in decline. The evidence also indicates that firms run by a member of the founding family are less likely to experience either internally precipitated top management turnover or a hostile takeover. On the other hand, firms whose top management team is dominated by a single, relatively young top executive, while lacking in internal discipline, are more likely to experience a hostile takeover.
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78.
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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24 Jan 07
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24 Jan 07
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41 (128,738)
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338
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Abstract:
No abstract is available for this paper.
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79.
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Jose A. Scheinkman Princeton University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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26 Jul 00
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26 Jul 00
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40 (129,991)
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175
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Abstract:
We examine the relationship between urban characteristics in 1960 and urban growth (income and population) between 1960 and 1990. Our major findings are that income and population growth move together and both types of growth are (1) positively related to initial schooling, (2) negatively related to initial unemployment and (3) negatively related to the share of employment initially in manufacturing. These results are qualitatively unchanged if we examine cities (a smaller political unit) or SMSAs (a larger 'economic' unit). We also find that racial composition and segregation are basically uncorrelated with urban growth across all cities, but that in communities with large nonwhite communities segregation is positively correlated with white population growth. Government expenditures (except for sanitation) are uncorrelated with urban growth. Government debt is positively correlated with later growth.
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80.
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Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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04 Apr 04
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30 Jun 08
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39 (131,222)
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5
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Abstract:
No abstract is available for this paper.
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81.
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Growth in Cities
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Hedi Kallal Salomon Smith Barney, Inc. Jose A. Scheinkman Princeton University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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Posted:
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03 Feb 01
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19 Nov 09
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38 (132,471) |
219
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Hedi Kallal Salomon Smith Barney, Inc. Jose A. Scheinkman Princeton University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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17 Nov 09
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19 Nov 09
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0
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Assesses the theories of knowledge spillover and growth proposed by Romer, Porter, and Jacobs by focusing on the largest industries in 170 U.S. cities. While the theories of Romer and Porter both emphasize spillovers within an industry, Romer predicts that a local monopoly is better for growth as compared to Porter's prediction that local competition fosters growth. Jacobs takes an opposing approach, holding that knowledge transfers come from outside the core industry. Data used in the analysis were collected from the 1956 and 1987 editions of the County Business Patterns, which is produced by the U.S. Bureau of Census. For each of 170 cities considered in the analysis, only the top six industries in that city were analyzed. To determine the effect of externalities on growth, the examination looks at the same industries in different cities. In cities where an industry is overrepresented, those industries grow more slowly. This result supports Jacobs' theory. Further results show that faster growth occurred in cities where the firms were smaller than the average national size of such firms. The work of Jacobs and Porter gains support from this result. Additional support for Jacobs is shown by the finding that growth is faster in city-industries where the remainder of the city is less specialized. The results are consistent for manufacturing and nonmanufacturing industries, and whether the industry has a primarily local or global market. Overall, the greatest support is shown for the theory put forth by Jacobs, that major technological spillovers often occur between rather than within industries. (SRD)
County Business Patterns, U.S. Bureau of Census, Specialization, Market competition, Knowledge spillovers, Urban development, Cities, Firm growth, Firm size, Knowledge transfer, Market diversification, Localization
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Edward L. Glaeser Harvard University - John F. Kennedy School of Government, Department of Economics Hedi Kallal Salomon Smith Barney, Inc. Jose A. Scheinkman Princeton University - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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03 Feb 01
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03 Feb 01
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38
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219
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Abstract:
No abstract is available for this paper.
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82.
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Philippe Aghion Harvard University - Department of Economics Yann Algan Universite Paris I Pantheon-Sorbonne - CNRS-EUREQUA Pierre Cahuc National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE) Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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19 Jan 09
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Last Revised:
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04 Feb 09
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36 (135,057)
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7
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Abstract:
In a cross-section of countries, government regulation is strongly negatively correlated with social capital. We document this correlation, and present a model explaining it. In the model, distrust creates public demand for regulation, while regulation in turn discourages social capital accumulation, leading to multiple equilibria. A key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt. We test this and other implications of the model using country- and individual-level data on social capital and beliefs about government's role, as well as on changes in beliefs and in trust during the transition from socialism.
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83.
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Olivier J. Blanchard Massachusetts Institute of Technology (MIT) - Department of Economics Andrei Shleifer Harvard University - Department of Economics
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16 May 00
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10 Apr 01
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35 (136,367)
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48
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Abstract:
In China, local governments have actively contributed to the growth of new firms. In Russia, local governments have typically stood in the way, be it through taxation, regulation, or corruption. There appears to be two main reasons behind the behavior of local governments in Russia. First, capture by old firms, leading local governments to protect them from competition by new entrants. Second, competition for rents by local officials, eliminating incentives for new firms to enter. The question then is why this has not happened in China. We argue that the answer lies in the degree of political centralization present in China, but not in Russia. Transition in China has taken place under the tight control of the communist party. As a result, the central government has been in a strong position both to reward and to punish local administrations, reducing both the risk of local capture and the scope of competition for rents. By contrast, transition in Russia has come with the emergence of a partly dysfunctional democracy. The central government has been neither strong enough to impose its views, nor strong enough to set clear rules about the sharing of the proceeds of growth. As a result, local governments have had few incentives either to resist capture or to rein in competition for rents. Based on the experience of China, a number of researchers have argued that federalism could play a central role in development. We agree, but with an important caveat. We believe the experience of Russia indicates that another ingredient is crucial, namely political centralization.
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84.
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Kevin M. Murphy University of Chicago Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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28 May 04
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28 May 04
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34 (137,736)
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169
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Abstract:
No abstract is available for this paper.
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85.
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Privatization in the United States
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Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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Posted:
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29 Jul 97
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16 Jul 00
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34 (137,736) |
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Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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16 Jul 00
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16 Jul 00
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34
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Abstract:
In the United States, the two principal modes of producing local government services are inhouse provision by government employees and contracting out to private suppliers, also known as privatization. We examine empirically how United States counties choose their mode of providing services. The evidence indicates that state clean- government laws and state laws restricting county spending encourage privatization, whereas strong public unions discourage it. The evidence is inconsistent with the view that efficiency considerations alone govern the provision mode, and points to the important roles played by political patronage and taxpayer resistance to government spending in the privatization decision.
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Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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29 Jul 97
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02 Dec 97
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0
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Abstract:
In the United States, the two principal modes of producing local government services are in-house provision by government employees and contracting out to private suppliers, also known as privatization. We examine empirically how U.S. counties choose the mode of providing services. The evidence indicates that state clean-government laws and state laws restricting county spending encourage privatization, whereas strong public unions discourage it. This points to the important roles played by political patronage and taxpayer resistance to government spending in the privatization decision.
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86.
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Olivier J. Blanchard Massachusetts Institute of Technology (MIT) - Department of Economics Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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14 Aug 07
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14 Aug 07
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32 (140,574)
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85
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Abstract:
No abstract is available for this paper.
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87.
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Andrei Shleifer Harvard University - Department of Economics
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29 Oct 05
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14 May 08
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31 (142,062)
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8
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Abstract:
No abstract available.
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88.
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Randall Morck University of Alberta - Department of Finance and Management Science Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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14 Apr 07
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Last Revised:
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14 Apr 07
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29 (145,319)
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209
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Abstract:
This paper documents for a sample of 327 US acquisitions between 1975 and 1987 three forces that systematically reduce the announcement day return of bidding firms. The returns to bidding shareholders are lower when their firm diversifies, when it buys a rapidly growing target , and when the performance of its managers has been poor before the acquisition. These results are consistent with the proposition that managerial rather than shareholders' objectives drive bad acquisitions.
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89.
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Nicola Gennaioli Stockholm University - Institute for International Economic Studies (IIES) Andrei Shleifer Harvard University - Department of Economics
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23 Feb 07
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19 Jun 07
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25 (153,405)
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4
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We investigate the evolution of common law under overruling, a system of precedent change in which appellate courts replace existing legal rules with new ones. We use a legal realist model, in which judges change the law to reflect their own preferences or attitudes, but changing the law is costly to them. The model's predictions are consistent with the empirical evidence on the overruling behavior of the U.S. Supreme Court and appellate courts. We find that overruling leads to unstable legal rules that rarely converge to efficiency. The selection of disputes for litigation does not change this conclusion. Our findings provide a rationale for the value of precedent, as well as for the general preference of appellate courts for distinguishing rather than overruling as a law-making strategy.
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90.
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Juan Carlos Botero American Bar Association - World Justice Project Rafael La Porta Tuck School of Business at Dartmouth Florencio Lopez de Silanes EDHEC Business School Andrei Shleifer Harvard University - Department of Economics Alexander Volokh Emory University - School of Law
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| Posted: |
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29 Feb 08
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29 Feb 08
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23 (158,402)
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5
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A review of the evidence on judicial reform across countries shows that those seeking to improve economic performance should not focus on judicial efficiency alone but on independence as well. It also shows that the level of resources poured into the judicial system and the accessibility of the system have little impact on judicial performance. Most of the problem of judicial stagnation stems from inadequate incentives and overly complicated procedures. Incentive-oriented reforms that seek to increase accountability, competition, and choice seem to be the most effective in tackling the problem. But incentives alone do not correct systematic judicial failure. Chronic judicial stagnation calls for simplifying procedures and increasing their flexibility.
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91.
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Kevin M. Murphy University of Chicago Andrei Shleifer Harvard University - Department of Economics
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25 May 06
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10 Jun 07
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23 (158,402)
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21
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92.
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Kevin M. Murphy University of Chicago Andrei Shleifer Harvard University - Department of Economics Robert W. Vishny University of Chicago - Booth School of Business
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| Posted: |
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29 Dec 06
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29 Dec 06
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22 (161,110)
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20
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Abstract:
We compare "real business cycle" and increasing returns models of economic fluctuations. In these models, business cycles are driven by productivity changes resulting either from technology shocks or from crucial building blocks that give both types of models hope of fitting the data. These building blocks include durability of goods, specialized labor, imperfect credit and elastic labor supply. We also present new evidence on comovernent of both outputs sand labor inputs across sectors and on the increasing returns model is easier to reconcile with the data than the real business cycle model.
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93.
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Timothy Frye Columbia University - Department of Political Science Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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14 Jun 00
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14 Jun 00
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22 (161,110)
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83
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Abstract:
Evidence from a survey of 105 shop-owners in Moscow and Warsaw shows that the reliance on private protection, as well as the burden of regulation and corruption, are much greater in Moscow. The evidence suggests that the `invisible hand' model of government better fits the Warsaw local government, and the`grabbing hand' model is more appropriate for Moscow. The evidence implies that the singular focus on the speed of economic reforms to understand the success of transition is misplaced, and that the quality of government may be as essential.
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94.
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Simeon Djankov Ministry of Finance Tim Ganser Harvard University - Department of Economics Caralee McLiesh World Bank - International Finance Corporation (IFC) Rita Maria Ramalho World Bank Group - Private Sector Advisory Services Department Andrei Shleifer Harvard University - Department of Economics
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| Posted: |
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30 Jan 08
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Last Revised:
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25 Feb 08
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21 (163,960)
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13
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Abstract:
We present new data on effective corporate income tax rates in 85 countries in 2004. The data come from a survey, conducted jointly with PricewaterhouseCoopers, of all taxes imposed on "the same" standardized mid-size domestic firm. In a cross-section of countries, our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. For example, a 10 percent increase in the effective corporate tax rate reduces aggregate investment to GDP ratio by 2 percentage points. Corporate tax rates are also negatively correlated with growth, and positively correlated with the size of the informal economy. The results are robust to the inclusion of controls for other tax rates, quality of tax administration, security of property rights, level of economic development, regulation, inflation, and openness to trade.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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95.
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