dominate modern economic history, taking that phrase to refer to the 50-year period from 1939 to 1989. One is the increasing strain on, and eventual structural failure of, centralized planning in virtually all of the self-styled socialist world. The other, less dramatic, but of no less historical significance, is the continued success of capitalism in its major strongholds. In both cases, I use as the crucial but not sole indicator of success or failure the political fortunes of the two social orders. There have been economic successes for socialism-above all, the initial industrialization of the USSR and the early modernization of China; there have been economic failures of capitalisminstability, uneven growth, unsatisfactory income distributions, dangerous international imbalances. From the perspective of the present, however, the half century is remarkable for the political verdict that has finally been passed on the two systems. With few exceptions, socialism has experienced a public delegitimization without precedent in modern, perhaps in all, history; whereas despite its failures, capitalism has enjoyed an uncontestable, and probably rising degree of internal political support. In this paper I shall be concerned only indirectly with these historical developments, for my purpose is neither to describe nor to explain the contrasting fates of the two great social orders. Rather, I wish to review and interpret the manner in which modern developments have been perceived by economists. Thus, as my title indicates, this is an essay in the history of economic thought, not in economic history. But it would be disingenuous not to admit to a more pointed purpose of my investigation. It is to inquire into the successes and failures of economic thought in anticipating the march of actual events. It will come as no surprise that failures have considerably outweighed successes in this endeavor, even excluding the momentous, and utterly unforeseen happenings at the conclusion of the period in 1989. A few observers have offered prognoses of history's long line that were subsequently vindi-

We provide a positive analysis of a firm's decision to report the operations of a financial subsidiary on a consolidated versus an unconsolidated basis. Our evidence indicates that the firm is more likely to choose consolidated reporting the greater the operating, financial, and informational interdependencies between parent and subsidiary. Moreover, our evidence offers no support for the FASB hypothesis that firms use unconsolidated financial subsidíaries to understate the fixed claims on their balance sheets.

In this study, we explore a view of expertise in which specific experiences and training create knowledge, and knowledge is combined with innate ability to perform specific audit tasks. Specifically, we test the extent to which we can explain cross-sectional variation in auditors' performance in several audit tasks using various types of knowledge and ability measures that have been identified in the psychology literature as important determinants of auditor expertise. We compare these results to the explanatory power of a simple measure of general audit experience. Our results indicate that, although more experienced auditors outperform less experienced auditors on average (and given our performance criteria), knowledge and innate ability provide a better explanation of variation in performance. Part of the motivation for this paper is to distinguish between general and expertise in the performance of information-processing tasks. Early studies of human information processing in accounting examined the effect of on performance in audit tasks (see, for example, Ashton and Brown [1980], Hamilton and Wright [1982], and Messier [1983]). Implicit in this research is the notion that . . a primary determinant of improved expertise ... is experience (Hamilton and Wright [1982, p. 757]). The reasoning behind this notion is that knowledge can be gained through and many audit tasks are knowl-

Abstract. This paper describes a psychological framework that examines auditors' conceptions of independence in the context of ethical cognition. An experimental study of independence judgments of 119 partners and managers in two national public accounting firms is reported. Using a well‐known measure of ethical cognition, this study examines auditors' implicit reasoning in the resolution of an independence paradigm. The most significant are that (1) a systematic relationship between auditors' measured ethical cognition and their resolution of an independence conflict exists, (2) the penalty attribute is a much stronger influence than the affiliation attribute on the auditors' ethical resolve, and (3) the cognitive measure used in this study can be used efficiently to explain priority rankings of a majority of independence attributes developed in earlier research. Résumé. Les auteurs décrivent ici une grille psychologique permettant d'analyser la façon dont les vérificateurs conçoivent l'impartialité dans le contexte de la conscience éthique. Ils font état des résultats d'une étude expérimentale des jugements d'impartialité de 119 associés et chefs de groupe attachés à deux cabinets d'experts‐comptables nationaux. Utilisant une mesure bien connue de la conscience éthique, les auteurs ana‐lysent le raisonnement implicite des vérificateurs dans la résolution d'un paradigme d'impartialité. Les principaux résultats de l'étude sont les suivants: 1) il existe une relation systématique entre la conscience éthique mesurée chez les vérificateurs et la façon dont ils résolvent un problème d'impartialité, 2) l'attribut « sanction » a sur la décision éthique des vérificateurs une influence beaucoup plus grande que l'attribut « affiliation » et 3) la mesure cognitive utilisée dans cette étude est efficace dans l'explication des classements de la plupart des attributs d'impartialité définis dans le travaux de recherche antérieurs.

This article investigates wage differentials for employees of different size firms utilizing an econometric methodology that allows the size of employer to be treated as endogenous in the context of discrete, ordered employer-size data. As a result we are able to estimate (i) employer-size wage gaps, which are corrected for selectivity bias, and (ii) the magnitude and direction of the selection bias. Decompositions of the resulting wage differentials are computed, with comparisons of the conditional (on sorting across employer size) and unconditional wage gaps.