NYU Woos Controversial Economics Professor

Despite federal lawsuit over conduct on Russia project, Shleifer pursued aggressively

Though their destinies remain intertwined in the form of an ongoing $102 million fraud suit, superstar Professor of Economics Andrei Shleifer ’82 and Harvard may soon be parting ways.

New York University’s Stern School of Business is putting on the full court press trying to recruit Shleifer, with an offer of nearly $500,000, the Chronicle of Higher Education reported last week.

Shleifer, 41, is considered one of the top experts in his field, with interests stretching from corporate finance to economic privatization. He is a winner of the John Bates Clark Medal, which honors the nation’s top economist under age 40 and is seen within the field as nearly as prestigious as the Nobel Prize.

But along with the University and former Harvard employee Jonathan Hay, Shleifer is also a defendant in a suit brought by the federal government alleging that Shleifer broke conflict of interest regulations while running a government-funded economic advising program in Russia.

The U.S. Department of Justice argues that personal investments Shleifer made in Russia constituted a breach of contract and undermined his program’s mission to help manage Russia’s transition to capitalism. A “disregard for ethics,” the government argues in court papers, taught Russians a lesson that was “the exact opposite from the one Harvard was paid to promote.”

Shleifer’s lawyers deny that his investments were improper and argue that they did not technically violate any rules.

A federal district court judge is currently considering the government’s request that summary judgment be made forcing Harvard to pay $102 million in damages.

Colleagues at Harvard said the ongoing legal action has no bearing on Shleifer’s scholarship and said that the University must do what it can to retain him.

“This is a must-win situation for Harvard,” said Morris University Professor Dale W. Jorgenson. “He’s a leading scholar of his generation. I would hope Harvard goes all-out in retaining him.”

“He’s a very valued colleague and I hope the University will do the right things to have him stay,” said Oliver S. Hart, chair of the Department of Economics.

Hart said the government’s allegations should not play a part in the University’s calculus. “The lawsuit plays out in court, and that’s the right place,” he said.

Other colleagues however, said the University should consider the legal proceedings and allegedd unethical behavior more seriously, drawing a parallel to recent demands for corporate responsibility.

According to Hart, it is up to Dean of the Faculty William C. Kirby to respond to NYU’s offer.

Kirby’s office released a one-sentence statement yesterday calling Shleifer a “valued member of the Faculty” and expressing the hope that he will remain at Harvard.

Neither Shleifer nor NYU officials returned repeated request for comment this week.

Hart doubted the University could match NYU’s offer, but is hopeful —“optimistic is too strong a word,” he said—that Harvard could keep Shleifer.

In addition to the support of many in his department, Shleifer also has a friend in a high place—University President Lawrence H. Summers. As a young professor, Summers advised Shleifer, and the two remain close friends.

In a deposition taken last year for the lawsuit, Summers testified that he had discussed with then-Dean of the Faculty Jeremy R. Knowles the need to retain Shleifer, come what may.

“I expressed to Dean Knowles at some point that I was concerned to make sure that Professor Shleifer remained at Harvard,” Summers testified. “I felt that he made a great contribution to the economics department and that I knew there was a lot swirling. [I] expressed the hope that Dean Knowles would be attentive to that.”

Because of his friendship with Shleifer, Summers has since recused himself from all matters pertaining to the case and Shleifer. A University spokesperson said yesterday only that Summers shares Kirby’s sentiments.

Professors said that luring away Shleifer from Harvard would be a major boon for NYU, and that Stern’s finance department would be a good fit for Shleifer.

Though Shleifer’s interests and expertise are wide-ranging, they are well-suited to either an economics department like Harvard’s or a business school like NYU’s, Hart said.

Should Shleifer leave, it would be a major blow to a department that just last year saw the high-profile departure of former Stone Professor of International Trade Jeffrey D. Sachs ’76, who left Harvard last year for a reported $300,000 at Columbia.

According to the Chronicle, Shleifer has spent time lecturing at Stern this fall. This spring he continues his year-long leave of absence from Harvard.

—Staff writer David H. Gellis can be reached at gellis@fas.harvard.edu.