We present a theory of a partial economic reform of a planned economy, similar to the one that took place in Russia since 1988 and in China earlier. In such a reform, some markets are liberalized in the sense that producers can sell output to whomever they want, including private firms, at free prices, but at the same time must sell to state firms at state prices. We show that such a reform can result in a substantial diversion of subsidized inputs away from state firms and toward private firms even when state firms value these inputs more. The result may be a reduction of total output. The simple analysis sheds light on many consequences of the Soviet reform, such as breakdown of coordination of production, increased state policing of delivery quotas, prohibitions of trading cooperatives, and opposition to privatization. The model also explains why partial reform failed in Russia but worked in China.

Previous research demonstrates that "brand name" (e.g., Big Eight versus non-Big Eight) is a factor affecting audit prices and auditor selection. As a quality surrogate, brand name reflects differences between auditor size categories in concern for reputation (DeAngelo 1981b) and the ability to withstand client pressure (Goldman and Barley 1974). it has not, however, been demonstrated that these features characterize quality differences within an auditor size category Although tests are difficult without a direct measure of quality, recent announcements by the General Accounting Office on CPA quality in governmental audits indicate a need to determine the factors that affect quality differences within auditor size categories, which is the subject of this study. Audit quality is defined as the probability that the auditor will both discover and report a breach in the client's accounting system (DeAngelo 1981a). Two explanations for variations in audit quality involve reputation and power conflict. Because an incumbent auditor captures client-specific quasi-rents, there is incentive to lower audit quality to retain the client. However, audit firm size is a moderating effect since a large client base allows a concern for reputation to remain more important than retention of any given client. The expectations are that (1) audit quality decreases as auditor tenure increases and (2) audit quality increases with the number of clients, in power conflicts, the client can exert pressure on the auditor to violate professional standards, and a large, financially healthy client can exert greater pressure with a threat of replacing the auditor. However, the established review of audit results or audit working papers by third parties can increase the auditor's ability to withstand client pressure. The expectations are that (3) audit quality is negatively related to the size and financial health of the firm and (4) audit quality improves when the auditor knows work will be subject to review, by third parties and that sanctions for poor quality work will occur. This article presents the results of an investigation into the determinants of audit quality provided by small, independent CPA firms in Texas on audits of independent school districts. The study analyzes quality control review (QCR) findings to obtain a relatively more direct measure of audit quality. Between 1984 and 1989 the Audit Division of the Texas Education Agency (TEA) conducted 308 QCRs. Numerical scoring of 232 QCR letters of findings represents the measure of minimum audit quality and the dependent variable in the regression analysis. Explanatory variables associated with reputation effects, power conflict effects, report timeliness, audit hours, and reported breaches were obtained from TEA sources. The major finding of the study is that audit quality definitions (DeAngelo 1981b; Goldman and Barley 1974) considered descriptive among audit size categories are sufficiently robust to explain quality variations within an audit size group. The results also confirm earlier studies relating audit quality to audit report timeliness (Dwyer and Wilson 1989) and actual audit hours (Palmrose 1986, 1989). We conclude that audit hours is a suitable surrogate for audit quality when direct measures are unavailable.

Provides an overview on the use of laboratory market experiment in auditing research. Concerns regarding the experiments and generality; Alternative approaches to characterizing equilibrium.

Investigates the effects of the auditor's penalty, auditing standard requirements, quality of the internal control structure and audit fee on tests of transactions and detailed tests of balances, fraud detection and incidence. Experimental economics; Game theory; Theory development.

Reviews the book `Ethical Conduct and the Professional's Dilemma: Choosing Between Service and Success,' by Banks McDowell.

This study provides evidence that market segmentation affects the strength of the association between financial disclosure and net interest cost for new issues of municipal bonds. Previous studies (see, e.g., Amershi and Ramamurtie 1990; Cook 1982; Hendershott and Kidwell 1978; Kidwell et al. 1983) show that the geographic segmentation of primary markets for municipal bonds along regional and national lines is characterized by different sources and costs of information. Because little information is available from alternative sources for the less marketable bonds of smaller issuers which use regional markets, financial reporting variables are hypothesized to be associated more strongly with interest costs for these issues than for those of larger municipalities, whose bonds are typically issued in the national bond market. Cook (1982) argues that the costs of obtaining information about small issuers from alternative sources are relatively high. For these issuers, who also do not issue bonds frequently, regional underwriters may be the only informational intermediaries (other than rating agencies if the bonds are rated) between the issuers and investors (Kidwell et al. 1983). Thus, financial and other entity-specific information contained in the offering statement are expected to be weighted more heavily in pricing these bonds than for bonds of larger issuers. Although this differential-information hypothesis is analogous to Atiase's (1985) argument regarding differential predisclosure of information, our study assumes differential availability of information across market segments, and size alone is not likely to be an adequate proxy for segmentation. Our main analysis uses the nature of the underwriting syndicate, whether it is managed by a national or regional underwriter, to proxy for the relevant market segment. Previous studies of municipal accounting (see, e.g., Ingram and Cope- land 1982; Wallace 1981; Wilson and Howard 1984) have provided evidence of an association between bond measures and accounting and auditing variables. However, the results were mixed and inconsistent, which may be attributable to differences in the entities examined (cities, counties, and school districts), the time periods examined, or definitions of variables. Also, differences in the mix of bonds issued in each segment may have contributed to the inconsistent results. By examining the relationship between accounting and auditing variables and bond interest costs separately for each segment of the primary bond market, our study provides useful evidence on the potential effect of different information environments on this relationship. Regression results based on a sample of 119 new municipal bond issues, partitioned on a measure of segmentation (regional vs. national underwriter), are consistent, with the hypothesis that the association between the quality and quantity of financial disclosure and interest costs is stronger for municipalities that issue bonds in local or regional markets than for those that issue bonds in the national market. Our results suggest that future research in this area should consider the potential effects of market segmentation when testing the association between accounting or auditing variables and bond interest costs.

Reviews the book `Making Corporate Reports Valuable: A Survey of Corporate Reporting Practices by Major U.K. Companies,' by S.J. Gray, C.B. Roberts and P.D. Gordon.

Reviews the book `Handbook of Business Valuation,' edited by Thomas L. West and Jeffrey D. Jones.

Elasticities for beer, wine and spirits are estimated for each of the provinces of Canada over the period 1956-83, using unrestricted dynamic regressions modeled after the error-correction mechanism. Alternative long-run estimates are also obtained from cointegrating regressions. Estimates vary markedly across provinces and suggest that increases in price will reduce consumption of all beverages in the short run, but in the long run no evidence is found that spirits use is price-sensitive. Increases in the legal drinking age reduce consumption in the short run but there is little indication of a long-run effect. The estimated income elasticity of beer is small while the estimated income elasticities for spirits and wine are substantially larger, especially in the long run. Coauthors are Ernest H. Oksanen, Michael R. Veall, and Deborah Fretz.

Using data collected by the authors on the largest and most durable of worker-owned firms in U.S. manufacturing, this paper is addressed to two questions. First, are the responses of cooperatives to changes in their economic environment different from those of conventional firms? It appears that cooperatives are more inclined to adjust pay than employment. Second, how profitable has membership in the cooperatives been? Using information on share prices, the authors find membership to have been extremely profitable and, in this sense, the prices of co-ops' shares have been underpriced. The riskiness of cooperative memberships is discussed.