Showing papers by "Andrei Shleifer published in 2005"

The Market for News

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

The Law and Economics of Self-Dealing

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.

A Normal Country: Russia after Communism

Abstract: uring the 1990s, Russia underwent extraordinary transformations. It changed from a communist dictatorship into a multiparty democracy in which officials are chosen in regular elections. Its centrally planned economy was reshaped into a capitalist order based on markets and private prop- erty. Its army withdrew peacefully from eastern Europe and the former Soviet republics, allowing the latter to become independent countries. Twenty years ago, only the most naive idealist could have imagined such a metamorphosis. Yet the mood among Western observers has been anything but celebratory. By the turn of the century, Russia had come to be viewed as a disastrous failure and the 1990s as a decade of catastrophe for its people. Journalists, politicians and academic experts typically describe Russia not as a middle-income country struggling to overcome its communist past and find its place in the world, but as a collapsed and criminal state. In Washington, both left and right have converged on this view. To Dick Armey, then Republican House majority leader, Russia had by 1999 become "a looted and bankrupt zone of nuclearized anarchy" (Schmitt, 1999). To his col- league, Banking Committee Chairman James Leach (1999a, b), Russia was "the world's most virulent kleptocracy," more corrupt than even Mobutu's Zaire. Ber- nard Sanders (1998), the socialist congressman from Vermont, described Russia's economic performance in the 1990s as a "tragedy of historic proportions"; liberal reforms had produced only "economic collapse," "mass unemployment" and "grinding poverty." More recently, a glimmer of optimism returned. President Bush, in late 2003, praised President Putin's efforts to make Russia into a "country in which democracy

The Extent of the Market and the Supply of Regulation

Abstract: We present a model in which setting up and running a regulatory institution takes a fixed cost. As a consequence, the supply of regulation is limited by the extent of the market. We test three implications of this model. First, jurisdictions with larger populations affected by a given regulation are more likely to have it. Second, jurisdictions with lower incremental fixed costs of introducing and administering new regulations should regulate more. This implies that regulation spreads from higher to lower population jurisdictions, and that jurisdictions that build up transferable regulatory capabilities should regulate more intensely. 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 than do smaller states. We also find that the regulation of entry, the regulation of labor, and the military draft are more extensive in countries with larger populations, as well as in civil law countries, where we argue that the incremental fixed costs are lower.

The Curley Effect: The Economics of Shaping the Electorate

Abstract: 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.

A normal country

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.

Conscription as Regulation

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

Conscription as Regulation

Abstract: We examine the practice of military conscription around the world from the perspective of two standard theories as well as 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.

Persuasion in Finance

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.

The Law and Economics of Self-Dealing December 1st, 2005

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.

The Evolution of Precedent

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.

Persuasion in Finance

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.

The Curley Effect: The Economics of Shaping the Electorate

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.

The Evolution of Precedent

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.