This award provides support to Dr. Andrei Shleifer under the National Science Foundation's Presidential Young Investigator Awards Program. The objective of this program is to provide research support to the Nation's most outstanding and promising young science and engineering faculty. The awards are intended to improve the capability of U.S. academic institutions to respond to the demand for highly qualified science and engineering personnel for academic and industrial research and teaching. This award will allow the investigator to pursue his research in the areas of microeconomics, financial economics, and development theory. One of the broad research questions central to his scholarly interests is how capital markets work. Despite the empirical successes of the current theory of capital markets, there are many observable phenomena that are inconsistent with the assumptions of the theory. Were the theory true, corporate takeovers would not take place or they would be inconsequential, all investors would hold very similar portfolios, and returns on markets would be less volatile and changes in asset prices would correspond to changes in economic fundamentals. Dr. Shleifer's work has helped us to understand how monopolistic and imperfectly competitive elements can be incorporated into our theories of capital markets. He has contributed to an explanation of the crucial role of large shareholders in the market for corporate control and to a model of the role of noise traders. The research promises to explain a great deal about speculation, volatility, and the efficiency of capital markets. Dr. Shleifer's work has been and will continue to be very effective in establishing an important synergy between fundamental research and related problems of practical significance to U.S. business and industry.
