Michael D. Bordo of Rutgers University reviews “Shock Values: Prices and Inflation in American Democracy” by Carola Binder. The Econlit abstract of this book begins: “Explores how price fluctuations and attempts to manage them have shaped American democracy, analyzing examples of the disparate impacts of price fluctuations and their political consequences.”

Gary D. Libecap of University of California, Santa Barbara reviews “Liquid Asset: How Business and Government Can Partner to Solve the Freshwater Crisis” by Barton H. Thompson Jr. The Econlit abstract of this book begins: “Examines the growing freshwater challenges facing the United States and the world, focusing on the growing role of private organizations in the US water sector.”

Lars Peter Hansen and Thomas J. Sargent's book, Recursive Models of Dynamic Linear Economies, exposits, extends, and applies methods for solution and analysis of dynamic stochastic linear quadratic models. The book, which can be used as a monograph or in a graduate course, integrates theory, econometrics, and computation. This essay provides a summary and offers some mild complaints about material not included in what is already a remarkably comprehensive book.

Is there a way to understand why some global environmental externalities are addressed effectively, whereas others are not? The transaction costs of defining the property rights to mitigation benefits and costs is a useful framework for such analysis. This approach views international cooperation as a contractual process among country leaders to assign those property rights. Leaders cooperate when it serves domestic interests to do so. The demand for property rights comes from those who value and stand to gain from multilateral action. Property rights are supplied by international agreements that specify resource access and use, assign costs and benefits including outlining the size and duration of compensating transfer payments, and determining who will pay and who will receive them. Four factors raise the transaction costs of assigning property rights: (i) scientific uncertainty regarding mitigation benefits and costs; (ii) varying preferences and perceptions across heterogeneous populations; (iii) asymmetric information; and (iv) the extent of compliance and new entry. These factors are used to examine the role of transaction costs in the establishment and allocation of property rights to provide globally valued national parks, implement the Convention on the International Trade in Endangered Species of Wild Fauna and Flora, execute the Montreal Protocol to manage emissions that damage the stratospheric ozone layer, set limits on harvest of highly-migratory ocean fish stocks, and control greenhouse gas emissions.

MacCoun and Reuter's primary goal is to understand how current U.S. drug policies can be improved. They carefully describe the facts and trends regarding drug usage, criminal justice enforcement, and the harms associated with drug use, then discuss the public debate surrounding drug prohibition and give an informal treatment of the theory underlying the competing positions. The authors study policies towards other vices like gambling, cigarettes, alcohol, and prostitution, as well as drug policies in other times and places. The broader implication that emerges is that there is a desperate need for better data and increased research if there is any hope for making truly informed policy on illicit drugs.

Wagering markets provide a natural laboratory for testing models of market prices and behavior under uncertainty. The literature on wagering, albeit contentious, has established the following. First, prices set in these markets, to a first approximation, are efficient forecasts of outcomes. Second, price changes in these markets are driven by an informed class of bettors and improve prediction. Nevertheless, there are important departures from generic notions of market efficiency. Recent models focusing on diverse information, heterogeneous agents, and transaction costs help to explain these findings.

IT IS CURious how in scientific disciplines very similar results of investigations into problems appear to emerge at the same time. It is as if the essential reality of a situation comes into increasing conflict with accepted ideas until, at a certain point, reality cannot be gainsaid. From various quarters attacks begin to mount and we begin to wonder why we were so simple-minded as to accept uncritically earlier concepts. Even so, we do not lightly reject these other views because, after all, a good deal of intellectual energy has gone into their formulation and propagation. We wait to be convinced; each new, available piece of research is scanned to see whether it supports the tenets of the old doctrine, or whether it adds to the growing swell of disillusionment. Finally, if we are honest, we are forced to admit that reality has not been explained by our older notions-there are too many discrepancies between facts and theory-and we embrace the new approach. These reflections are engendered upon reading three books published at the end of 1970 or the beginning of 1971.1 All deal with the results of many years of development efforts by developing countries and all are critical of present policies. Broadly speaking, we may say that the LittleScitovsky-Scott book concentrates its criticisms on policies of import-substittiton whilst the ILO and Turnham books focus upon the failure of policies to obviate growing unemployment. Let us look at the Little-Scitovsky-Scott book first. This is an interesting example of what can be achieved by teamwork in economic research. The book was based on researches undertaken in various countries (Brazil, India, Pakistan, Mexico, Philippines, and Taiwan) by those who had extensive knowledge of the countries concerned. Their individual contributions were analyzed by the three authors (who also incorporated material on Argentina). The result is a well-documented multiple casestudy of development, with theoretical iinplications far beyond the particular countries covered.2 Little-Scitovsky-Scott3 concern themselves first with a consideration of the factors which have led to the growth of import-substitution. One factor was the de-