Journal of Economic Literature
Vol. 39, No. 4, December 2001
Contents
Financial Contracting
Oliver Hart
Education For Growth: Why and For Whom?
Alan B. Krueger and Mikael Lindahl
The Determinants of Earnings: A Behavioral Approach
Samuel Bowles, Herbert Gintis, and Melissa Osborne
Business and Social Networks in International Trade
James E. Rauch
A Ricardo-Sraffa Paradigm Comparing Gains from Trade
in Inputs and Finished Goods
Paul A. Samuelson
Review of de Soto’s The Mystery of Capital
Christopher Woodruff
Book Reviews
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Financial Contracting
Oliver Hart
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.
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Education For Growth: Why and For Whom?
Alan B. Krueger and Mikael Lindahl
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.
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The Determinants of Earnings: A Behavioral Approach
Samuel Bowles, Herbert Gintis, and Melissa Osborne
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.
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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.
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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."
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Review of de Soto’s The Mystery of Capital
Christopher Woodruff
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.
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