Tuesday, January 25, 2005

Shepsle and Shleifer at LSE

In the early afternoon, I worked on building a model and managed to derive an outcome, which isn't what I was expecting...

In the late afternoon, I talked to Professor Ken Shepsle, who has been visiting STICERD for two weeks from Harvard University. I asked him if he knows any papers that theoretically model different ways of choosing the chief executive in a non-democratic political process, as I empirically found this matters for secure property rights.

He suggested Soskice, Bates, and Epstein (1992), which is quite similar to what I have in mind. He asked me more on my research project and kindly gave some comments.

In the evening, Professor Andrei Shleifer, again visiting LSE from Harvard, gave the first of his three public lectures on legal origin. Today's delivery was based on Glaeser and Shleifer (2002). At the end of the lecture, he mentioned three reasons for why he didn't investigate the effect of legal origins (British common law vs. French civil law) on economic growth through changes in 'institutions' like property rights enforcement. (1) Any legal origin can flourish an economy: both Britain and France are now rich countries. (2) There are very few objective measures of institutions. Most of the measures used in the literature are outcomes rather than institutions. (3) Historical indicators like legal origins or European settlers' mortality can hardly satisfy the validity of instruments as it proxies for many things that affect economic growth without going through the quality of institutions (e.g. human capital). The second and third points are from Glaeser, La Porta, Lopez-de-Silanes, and Shleifer (2004).

After the lecture was over, I came up with one question. Shleifer argues that the 12th century saw a divergence of legal systems between England and France, and that this institutional difference has persisted until today. This argument involves inconsistency. Legal institutions changed in the 12th century while they haven't changed at all since then. It's not clear why we saw a change in institutions in the 12th century but we haven't ever since.

I talked about the lecture with Tianxi, who questioned why the English kings, stronger than feudal lords, implemented a relatively independent judiciary system. If the king is more powerful than anyone, he should be able to do whatever he likes. Certainly, an independent judicial system is not what he wants. To think over his question, I read Glaeser and Shleifer (2002). They assume that a legal system is a consequence of Coasian bargaining. In other words, it reflects the maximised social welfare given some exogenous parameters including the powerfulness of feudal lords. So the English king didn't play a role of determining which legal system is beneficial, which I would say is quite controversial.

It was quite stimulating a day, all owing to the fact that I'm a PhD student at LSE, where researchers who I can share my interests with more or less tend to gather. Maybe the coming two years will be the most enjoyable experience in my life as an economist. So I'll make the most of it as much as possible!

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