Andrei Shleifer

Bio: Andrei Shleifer is an academic researcher from Harvard University. The author has contributed to research in topics: Government & Shareholder. The author has an hindex of 171, co-authored 514 publications receiving 271880 citations. Previous affiliations of Andrei Shleifer include National Bureau of Economic Research & University of Chicago.

Peter Bauer and the Failure of Foreign Aid

Abstract: Peter Bauer was one of the greatest development economists in history. He was an advocate of property rights protection and free trade before these ideas became commonplace. He appreciated before others did the crucial roles of entrepreneurship and trade in development. He was also one of the earliest opponents of the overpopulation thesis, recognizing that the poor like the rich should have the right to choose the number of children they have, that many developing countries are underpopulated, and that population growth will anyhow slow down once they become richer. Baner's writings are remarkable for their deep humanity and commitment to the welfare of the people in the developing world, but without the fake sanctimony that characterizes much of the modern rhetoric. The Foreign Aid Debacle Bauer is perhaps best known as a persistent and articulate critic of foreign aid. At least since 1972, he saw it as not only failing to speed up, but actually hurting economic development. He started his criticism when foreign aid to the developing world was only getting underway, and never wavered. He defined foreign aid as "a transfer of resources from the taxpayer of a donor country to the government of a recipient country" (Bauer 1975: 396). Needless to say, this did not endear him to the aid establishment. Indeed, 30 years ago, just as today, a critic of foreign aid was ridiculed for being inhumane and insensitive to the plight of the poor. Bauer's 1972 book was savaged by the surly (now Sir) Nicholas Stern, who wrote, "Dissent on Development is not a valuable contribution to the study of development" (Stern 1974: 209). Stem's case for aid was simple: People in the rich countries are much richer than people in the poor ones, and therefore foreign aid is their moral obligation. This observation was supplemented with a sprinkling of success stories and a criticism of Bauer for excessive reliance on examples. Little has changed in 30 years. In retrospect, Bauer looks both prescient and courageous. And prescient he was. Countless empirical studies have failed to find beneficial effects of official foreign aid. The consensus that aid has failed is nearly universal among those who look at the data. Perhaps the most important recent statements of this conclusion are William Easterly's accounts of both the history and the evidence on foreign aid (Easterly 2003, 2006, 2009). The failure of foreign aid is all the more remarkable once we remember that, in the last quarter century, the world has experienced an enormous spurt of economic growth and social development. I have elsewhere (Shleifer 2009) called this period "The Age of Milton Friedman" and documented its enormous accomplishments. Starting from East Asia, and concluding most recently with India and China, nearly all the countries in Asia (where much of the world's population lives) have experienced rapid economic and social progress. The collapse of communism started the period of economic transition in Eastern Europe and the former Soviet Union, which, while difficult at the start, within a few years has brought rapid economic growth in the whole region. Even the current economic crisis will slow down, but is highly unlikely to reverse, these achievements. Economic success has not been as conspicuous in Latin America and Africa. Even those regions, however, judging by many indicators of human development, such as health, education, and poverty reduction, have seen substantial progress. Economic growth has been accompanied by improvements in the quality of life for billions of people. Extreme poverty is declining at staggering rates. Life expectancy has grown tremendously around the world. Literacy and education have improved rapidly. Starting in the mid 1970s, when Bauer began to criticize foreign aid, the world has experienced unbelievable growth in democracy and human rights. The sources of economic progress are becoming increasingly apparent. …

Teaching Practices and Social Capital

Abstract: We use several data sets to consider the effect of teaching practices on student beliefs, as well as on organization of firms and institutions. In cross-country data, we show that teaching practices (such as copying from the board versus working on projects together) are strongly related to various dimensions of social capital, from beliefs in cooperation to institutional outcomes. We then use micro-data to investigate the influence of teaching practices on student beliefs about cooperation and students' involvement in civic life. A two-stage least square strategy provides evidence that teaching practices have an independent sizeable effect on student social capital. The relationship between teaching practices and student test performance is nonlinear. The evidence supports the idea that progressive education promotes social capital.

What Comes to Mind

Abstract: We present a model of judgment under uncertainty, in which an agent combines data received from the external world with information retrieved from memory to evaluate a hypothesis. We focus on what comes to mind immediately, as the agent makes quick, intuitive evaluations. Because the automatic retrieval of data from memory is both limited and selected, the agent's evaluations may be severely biased. This framework can account for some of the evidence on heuristics and biases presented by Kahneman and Tversky, including conjunction and disjunction fallacies.

The Law and Economics of Self-Dealing April, 2006

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 previously introduced index of anti-director rights.

Politics of Market Socialism

Abstract: The debate over market socialism has ignored the importance of the assumptions about the objectives of politicians in determining resource allocation. Theory and evidence suggest that totalitarian socialism does not lead to efficient resource allocation because dictators do not maximize social welfare. But democratic governments have political objectives different from social welfare as well. The authors argue that because these governments command greater resources (have more control rights) under socialism, democratic socialism (even if it could exist) is a less efficient system than democratic capitalism. Thus the political case against market socialism is even stronger than the economic case.

Law and Finance

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.

Law and Finance

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 Frenchcivil-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.

A Survey of Corporate Governance

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.

A Survey of Corporate Governance

Abstract: This article 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. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency

Abstract: This paper documents that strategies which buy stocks that have performed well in the past and sell stocks that have performed poorly in the past generate significant positive returns over 3- to 12-month holding periods. We find that the profitability of these strategies are not due to their systematic risk or to delayed stock price reactions to common factors. However, part of the abnormal returns generated in the first year after portfolio formation dissipates in the following two years. A similar pattern of returns around the earnings announcements of past winners and losers is also documented