MONTHLY data for the building and construction industries available for the period since the War make possible a fairly satisfactory measure of the cyclical fluctuations in building activity. In an earlier issue of this REVIEW, a detailed analysis of building statistics for the United States was presented and certain important conclusions were drawn concerning the general character of fluctuations in the building industry.' The following pages are devoted to a brief description of the post-war cyclical fluctuations of building activity and to discussion of the data, methods, and statistical background of our adjusted indexes of building and real estate activity.

extent and direction of the month-to-month fluctuations were substantially accurate, the general level of the index was somewhat too low. The current revision was undertaken therefore in order to correct this discrepancy in level and, at the same time, to improve the several industry indexes. Chart i presents the revised mining index, monthly, for the period since August 1922, in comparison with the unrevised index which is shown for the interval since January 19I9. The tie-on between the old and the new index was made in August 1922, the closing month of the prolonged coal strike in the bituminous coal and anthracite fields. The two indexes were then practically coincident. The higher level of the revised index is accounted for in the main by revisions in the normal lines for output of anthracite and bituminous coal and for shipments of iron ore. The technique of the analysis has in general been similar to that of the revision of the index of the volume of manufacture which was discussed in detail in the May 1929 REVIEW. The revised index, like the old, is a weighted arithmetic average of relatives, the weights being based upon average values of the minerals over a period of years. The fuels and metals group indexes have been retained and are shown in graphic form on Chart 2. The fluctuations in the

I N September I92I, the Harvard Economic Service first published its Unadjusted Monthly Index of the Volume of Manufacture. This unadjusted index was published currently until the following March when the adjusted monthly index was first presented. It was not until August I922, however (shortly after preliminary data from the I9I9 Census of Manufactures became available), that the index appeared as a combination of the three subordinate indexes registering fluctuations in the physical volume of output of (I) basic materials, (2) equipment and vehicles, and (3) consumption

FROM the standpoint of the physical volume of production, the year I926 was one of extraordinary growth. Actual output of both manufacture and mining established new high records for all time and agricultural production, the largest in the past 6 years, has been exceeded only in 1920 (Tables A and H). In each of these major lines of activity, the increase in the volume of production from the level of the preceding year was larger tl' an that normally to be expected even in a growing country like the United States. Such is the record as presented in graphic form on Chart i and in tabular form in Table B. Moreover, both mineral and industrial production, as

THE purpose of the present study is to revise our index of the yield of io railroad bonds by correcting certain defects which have become apparent, so that it will more accurately register the fluctuations of pure long-time interest rates. Table X presents the maturity dates and other data for the bonds included in the old index.' The wide variation in maturity dates, ranging from I927 to 236i, and the fact that the bonds do not at present represent high class investments in railroad securities are obvious reasons for the construction of a new index.

D ISTRIBUTION of the population by urban, rural nonfarm and farm residence is one of the oldest and most established causes of differentials in fertility cited by demographers.' Geographical region is also frequently mentioned in demographic studies as a source of variation in fertility in the United States. Race and social class, the latter often measured by occupational status, are additional variables popular with both demographers, and less specialized sociologists, as sources of variation in fertility.2 In most of the studies by demographers, a major difficulty with the factors proposed as causes of variation in fertility is that there is no way of knowing whether the variables are separate and independent explanations of birth rate differentials. To some extent, this is due to the fact that the statistical methodology consists of simple correlations, or more frequently, tabular and graphical presentations, which limit the analysis to two or three dimensions. A more fundamental criticism is that the discussion of the causal relationship between the independent variables and the fertility differentials does not attempt to assay whether basic factors, such as income and economic conditions, and the costs and benefits of having children, are common explanations of the variations in fertility by community of residence, geographical region, class, race, etc. Analyses of birth rate differentials by economists usually are based on a stronger statistical methodology than the studies by demographers but suffer from a similar weakness in their analytical formulation. independent contribution of the variables to fertility differentials is determined by means of multiple regression or partial correlation analysis. Although meaningful statistically, the regression results usually afford little insight into the fundamental relationship between population growth and economic development and/or economic conditions. One source of confusion in economic crosssection studies of birth rates may be the unfortunate choice of data. Some economists apparently ignore the demographers' findings that a considerable portion of the variance in fertility within a country is due to geographical differentials, and attempt a cross-section analysis of fertility on a very heterogeneous sample composed of different countries.3 It would seem that a more homogeneous sample of observations within a country is a more propitious beginning for an interpretation of the relationship between birth rates and economic variables. Economists have benefited from one of the findings of demographers. A popular variable for inclusion is the fraction of the population classified as farm or the per cent of the labor force employed in nonagricultural industries. Weintraub suggests that the ratio of the popu* This paper is a revision of an earlier version presented at the annual meeting of the Western Economic Association at Corvallis, Oregon, August, 1968. It has benefited from a critical reading by our colleague Jerzy F. Karcz who made a number of helpful suggestions. Our appreciation goes to Dana Burtness who assisted us in all phases of this study but especially in making our interactions with the IBM 360 Computer pleasant. Additional credit goes to John Danforth and Ken Gralla who assisted us in the early stages of this study. 'Ben Franklin noted this causal relationship between birth rate differentials and population distribution as early as 1786. 2The following references are typical of the analysis of differential fertility by demographers. Donald J. Bogue, of the United States, Free Press of Glencoe, Illinois (1959), chapter 12 -The Fertility of the United States Population (contributed by Wilson H. Grabill). Warren S. Thompson, Problems, McGraw-Hill Book Co. (1965), chapter 11 -Some Factors Affecting Fertility. As an example in the same vein by a sociologist, refer to the book by T. Lynn Smith, Fundamentals of J. P. Lippincott Co. (1960), chapter 13Differential Fertility. 3 Typical of the multiple regression cross-section analysis of fertility differentials in different countries conducted by economists are Irma Adelman, Econometric Analysis of Growth, American Economic Review, 52, no. 3 (1963); Robert Weintraub, The Birth Rate and Economic Development, An Empirical Study, Econometrica, 40, no. 4 (Oct. 1962).

Prior work suggests that if a firm shares a larger proportion of its growth opportunities with rivals, an inability to fully invest in these opportunities leads to predatory behavior on the part of rivals and losses in market share. We examine whether firms manage this predation risk. We find inter- and intra-industry evidence that the extent of the interdependence of a firm's investment opportunities with rivals is positively associated with its use of derivatives and the size of its cash holdings. Moreover, an analysis of investment behavior provides evidence that if this interdependence is high, the management of predation risk provides strategic benefits. Our results indicate that predation risk is an important determinant of corporate financial policy choices and investment behavior.

We develop a simple model of the effect of public transaction reporting on trade execution costs and test it using a sample of institutional trades in corporate bonds, before and after initiation of the TRACE reporting system. Trade execution costs fell approximately 50% for bonds eligible for TRACE transaction reporting, and 20% for bonds not eligible for TRACE reporting, suggesting the presence of a “liquidity externality.” The key results are robust to changes in variables, such as interest rate volatility and trading activity that might also affect execution costs. Market shares and the cost advantage to large dealers decreased post-TRACE. These results indicate that market design can have first-order effects, even for sophisticated institutional customers.

Accountant and economist are a sensible combination on matters of income determination, as Professors Robert L. Dickens and John O. Blackburn demonstrated, that their several-pronged analysis demolishes the case for replacement cost as an ingredient in accounting net income is, however, deserving of a demurrer. This present article is a criticism of their criticism, the purpose being to return the argument to what the economists regard as its proper grounds. The criticisms embrace three areas, methodology, economic theory, and accounting theory. The methodological criticisms are, of course, general and independent of the subject matter treated. The criticisms on economic theory refer primarily to economic concepts which underlie many of the questions discussed by Dickens and Blackburn and are, of course, specific to economic theory and its applications. The criticisms on accounting theory are principally concerned with the charges, both express and implied, by Dickens and Blackburn that the use of replacement cost is incompatible with the informational needs of stockholders, and significantly less conventional than the use of conventional accounting, thus being an invitation to easy manipulation of accounting data by managers.