Andrei Shleifer

The Harvard Institute for International Development hired Andrei Shleifer to lead its Russian aid project from 1992 until 1997, marking a pivotal chapter in his career as a policy advisor. A Russian-born economist who emigrated to the United States as a teenager in 1976, Shleifer has spent decades re-evaluating the mechanics of financial markets, corporate governance, and law.

Academic Foundation

Shleifer arrived in Rochester, New York, in 1976. He attended East High School before moving to Cambridge to study mathematics at Harvard University, where he earned a bachelor's degree in 1982. During his undergraduate years, he encountered Lawrence Summers, who became his long-term mentor and frequent research collaborator. Shleifer completed his doctorate in economics at the Massachusetts Institute of Technology in 1986 at age 25. He began his teaching career at Princeton University and the University of Chicago before joining the faculty at Harvard University in 1991, where he remains a professor.

Financial Theory and Behavioral Finance

Much of Shleifer's research challenges the theory of efficient markets. In his 1997 paper co-authored with Robert Vishny, 'The Limits to Arbitrage,' he examined the risks faced by investors attempting to correct market misvaluations. The work identified how institutional pressures, such as the threat of investor withdrawals from hedge funds, can prevent the correction of asset prices. Earlier, in 1994, he published 'Contrarian Investment, Extrapolation, and Risk' with Josef Lakonishok and Vishny, providing a framework to explain why value stocks often outperform growth stocks by accounting for differing risk profiles.

Corporate Governance and Legal Origins

Beginning in 1997, Shleifer’s research shifted toward the 'legal origins theory,' which posits that a nation’s legal tradition significantly influences its financial development. Working with Rafael La Porta, Florencio Lopez-de-Silanes, and Robert Vishny—a group known as LLSV—he produced a series of papers demonstrating that strong legal protections for investors correlate with more robust capital markets and higher dividend payments. This body of research emphasizes how institutions and legal frameworks govern the behavior of firm managers and the willingness of outside investors to provide capital.

Policy and Consultancy

Shleifer acted as a direct advisor to Anatoly Chubais, the vice-premier of Russia, during the period of Russian privatization. In this capacity, he worked to establish a functioning stock market infrastructure in the country. His involvement with the Harvard Institute for International Development included managing a project funded by the U.S. government. Following investigations into the project by the General Accounting Office in 1996, Shleifer eventually settled a lawsuit with the U.S. government regarding contract violations associated with the project's investments.

Fast facts

• Born: 1961, Moscow
• Citizenship: United States
• Doctorate: Massachusetts Institute of Technology, 1986
• John Bates Clark Medal recipient: 1999
• Sloan Fellowship recipient: 1990
• Primary Employer: Harvard University
• Co-founder: LSV Asset Management
• Membership: American Academy of Arts and Sciences

Questions readers ask

What is the legal origins theory?

It is the hypothesis that a country's legal tradition, such as common law or civil law, is a primary determinant of its level of financial development and investor protection.

What is Shleifer's connection to LSV Asset Management?

He co-founded the firm in 1994 alongside Josef Lakonishok and Robert Vishny, though he sold his ownership stake in 2003.

Why was the 1996 GAO investigation launched?

The investigation was prompted by complaints regarding the Harvard Institute for International Development’s Russian aid project, which Shleifer directed.

Achievements

• Affiliated with Harvard University
• Educated at Harvard University, Massachusetts Institute of Technology and East High School
• Worked as economist and university teacher