American Economic Association Nashville, Tennessee 0022-0515 Journal of Economic Literature 39 4 December 2001 10791100 Financial Contracting OliverHart This paper discusses how economists' views of firms' financial structure decisions have evolved, from treating firms' profitability as given, to acknowledging that managerial actions affect profitability, to recognizing that firm value depends on the allocation of decision or control rights. The paper argues that the decision or control rights approach is useful, even though it is at an early stage of development, and that the approach has some empirical content: it can throw light on the structure of venture capital contracts and the reasons for the diversity of claims. http://www.aeaweb.org/journal/contents/December2001.html American Economic Association Nashville, Tennessee 0022-0515 Journal of Economic Literature 39 4 December 2001 11011136 Education for Growth: Why and for Whom? Alan B.KruegerMikaelLindahl This paper summarizes and tries to reconcile evidence from the microeconometric and empirical macro growth literatures on the effect of schooling on income and GDP growth. Much microeconometric evidence suggests that education is an important causal determinant of income for individuals within countries. At a national level, however, recent studies have found that increases in educational attainment are unrelated to economic growth. This discrepancy appears to be a result of the high rate of measurement error in first-differenced cross-country education data. After accounting for measurement error, the effect of changes in educational attainment on income growth in cross-country data is at least as great as microeconometric estimates of the rate of return to years of schooling. Another finding of the macro growth literature--that economic growth depends positively on the initial stock of human capital--is not robust when the assumption of a constant-coefficient model is relaxed. http://www.aeaweb.org/journal/contents/December2001.html American Economic Association Nashville, Tennessee 0022-0515 Journal of Economic Literature 39 4 December 2001 11371176 The Determinants of Earnings: A Behavioral Approach SamuelBowlesHerbertGintisMelissaOsborne We survey the determinants of earnings and propose a framework for understanding labor market success. We suggest that the advantages of the children of successful parents go considerably beyond the benefits of superior education, the inheritance of wealth, or the genetic inheritance of cognitive ability. We suggest that noncognitive personality variables, such as attitudes towards risk, ability to adapt to new economic conditions, hard work, and the rate of time preference affect both earning and the transmission of economic status across generations. http://www.aeaweb.org/journal/contents/December2001.html American Economic Association Nashville, Tennessee 0022-0515 Journal of Economic Literature 39 4 December 2001 11771203 Business and Social Networks in International Trade James E.Rauch The first two main sections survey the roles of transnational networks in alleviating problems of contract enforcement and providing information about trading opportunities, respectively. The next section covers how domestic networks influence international trade through their impact on domestic market structure. Two overarching questions unify these sections: how do networks affect efficiency, and will networks grow or shrink in importance for international trade over time. The last main sections develop research agendas for two less studied areas: the role of intermediaries who can connect foreign agents to domestic networks and the ability of transnational production networks to facilitate technology transfer. http://www.aeaweb.org/journal/contents/December2001.html American Economic Association Nashville, Tennessee 0022-0515 Journal of Economic Literature 39 4 December 2001 12041214 A Ricardo-Sraffa Paradigm Comparing Gains from Trade in Inputs and Finished Goods Paul A.Samuelson Here is how the 1817 Ricardo comparative advantage trade benefit analysis has to be modified to take account of post-1960 Sraffian benefits from capital-using technologies. By bringing J. S. Mill's demand model up to date in terms of its implicit geometric-mean money-metric utility, specific measurements for real net national product are calculated to partition sources of welfare gains (from output enhancements and taste-preference accommodations) in scenarios of (1) trade between equals, (2) trade between poor and rich nations, and (3) for biased inventions that enable a poor country to take over production of items in which formerly the rich place enjoyed comparative advantage. History of economic doctrine is mined to advance today's frontier of scientific knowledge--a forward-looking function for "Whig history." http://www.aeaweb.org/journal/contents/December2001.html American Economic Association Nashville, Tennessee 0022-0515 Journal of Economic Literature 39 4 December 2001 12151223 Review of de Soto's The Mystery of Capital ChristopherWoodruff In The Mystery of Capital, Hernando de Soto promotes his explanation of why formal capital markets function poorly in developing countries. De Soto argues that much of the population of developing countries lacks access to credit, not because they lack assets, but because ownership of their property is secured informally, which prevents the use of property as collateral. The inability to convert assets into capital keeps the developing world from benefiting from capitalism. http://www.aeaweb.org/journal/contents/December2001.html