Found 38 article(s) for author 'Andrei Shleifer'

Money Doctors

Money Doctors. Andrei Shleifer, August 2013, Paper. “We present a new model of investors delegating portfolio management to professionals based on trust. Trust in the manager reduces an investor’s perception of the riskiness of a given investment, and allows managers to charge fees. Money managers compete for investor funds by setting fees, but because of trust fees do not fall to costs. In equilibrium, fees are higher for assets with higher expected return, managers on average underperform the market net of fees, but investors nevertheless prefer to hire managers to investing on their own…” Link

Tags: ,

A Model of Shadow Banking

A Model of Shadow Banking. Andrei Shleifer, August 2013, Paper. “We present a model of shadow banking in which banks originate and trade loans, assemble them into diversified portfolios, and finance these portfolios externally with riskless debt. In this model: outside investor wealth drives the demand for riskless debt and indirectly for securitization, bank assets and leverage move together, banks become interconnected through markets, and banks increase their exposure to systematic risk as they reduce idiosyncratic risk through diversification…” Link Verified October 18, 2014

Tags: , , ,

Salience and Asset Prices

Salience and Asset Prices. Andrei Shleifer, May 2013, Paper. “In Bordalo, Germaoli, and Shleifer (2012a) – henceforth, BGS (2012a) – we described a new approach to choice under risk that we called salience theory. In comparisons of risky lotteries, we argued, individuals’ attention is drawn to those payoffs which are most different or salient relative to the average. In making choices, individuals overweight these salient payoffs relative to their objective probabilities. A simple formalization of such salience-based probability weighting provides an intuitive account of a variety of puzzling evidence in the decision theory…” Link Verified October 18, 2014

Tags: ,

Government Ownership and Privatization

Government Ownership and Privatization. Andrei Shleifer, March 13, 2013, Opinion. “Fifty years ago, economists, politicians, and the public believed that important industries should be owned by the government. Reasons included concern with monopoly power and a lack of regard for social objectives. In many developing but also developed countries (not to mention communist states), “key sectors” such as banking, energy, transportation, steel became government owned. By 1980s, it became widely recognized that government ownership is extremely inefficient…” Link Verified October 19, 2014

Tags: ,

An Activity-Generating Theory of Regulation

An Activity-Generating Theory of Regulation. Andrei Shleifer, February 2013, Paper. “We propose an activity-generating theory of regulation. When courts make errors, tort litigation becomes unpredictable and as such imposes risk on firms, thereby discouraging entry, innovation, and other socially desirable activity. When social returns to activity are higher than private returns, it may pay the society to generate some information ex ante about how risky firms are and to impose safety standards based on that information. In some situations, compliance with such standards should entirely preempt tort liability…”  Link verified March 28, 2014

Tags: ,

The Failure of Judges and the Rise of Regulators

The Failure of Judges and the Rise of Regulators. Andrei Shleifer, January 6, 2012, Book. “Government regulation is ubiquitous today in rich and middle-income countries–present in areas that range from workplace conditions to food processing to school curricula–although standard economic theories predict that it should be rather uncommon. In this book, Andrei Shleifer argues that the ubiquity of regulation can be explained not so much by the failure of markets as by the failure of courts to solve contract and tort disputes cheaply, predictably, and impartially. When courts are expensive, unpredictable, and biased, the public will seek…” Link

Tags: ,

Neglected Risks, Financial Innovation, and Financial Fragility

Neglected Risks, Financial Innovation, and Financial Fragility. Andrei Shleifer, May 27, 2011, Paper. “We present a standard model of financial innovation, in which intermediaries engineer securities with cash flows that investors seek, but modify two assumptions. First, investors (and possibly intermediaries) neglect certain unlikely risks. Second, investors demand securities with safe cash flows. Financial intermediaries cater to these preferences and beliefs by engineering securities perceived to be safe but exposed to neglected risks. Because the risks are neglected, security issuance is excessive. As investors eventually recognize…” Link

Tags: , ,

Fire Sales in Finance and Macroeconomics

Fire Sales in Finance and Macroeconomics. Andrei Shleifer, Winter 2011, Paper. “Analysts of the recent financial crisis often refer to the role of asset “fire sales” in depleting the balance sheets of financial institutions and aggravating the fragility of the financial system. For example, a report from the U.S. Treasury (2009) held: ‘An initial fundamental shock associated with the bursting of the housing bubble and deteriorating economic conditions generated losses for leveraged investors including banks…The resulting need to reduce risk triggered a wide-scale deleveraging in these markets and led to fire sales.’ Similarly, a discussion of…” Link

Tags: ,

The US and Russia: They Don’t Need Us

The US and Russia: They Don’t Need Us. Andrei Shleifer, September 28, 2010, Paper. “Russia‟s international behavior during the last decade puzzles many American observers. As seen from Washington, the greatest current challenges—terrorism, nuclear proliferation, climate change—are global ones that threaten all states. The US, the world‟s only remaining superpower, has been trying to organize multilateral responses. Yet, on issue after issue, the Kremlin has proved singularly unhelpful. For years, Russian negotiators stalled efforts to compel Iran and North Korea to give up nuclear weapons or weapons programs…Link

Tags: , ,

Regulation and Distrust

Regulation and Distrust. Philippe Aghion, Andrei Shleifer, August 2010, Paper. “We document that, in a cross section of countries, government regulation is strongly negatively correlated with measures of trust. In a simple model explaining this correlation, distrust creates public demand for regulation, whereas regulation in turn discourages formation of trust, leading to multiple equilibria. A key implication of the model is that individuals in low-trust countries want more government intervention even though they know the government is corrupt. We test this and other implications of the model using country- and individual-level data on trust…” Link

Tags: , ,