Krouse and Lee [5] have formulated an optimal financing problem of a firm in the dynamic setting of optimal control theory. Specifically, the problem is to find a financing mix of retained earnings and external equity over time in a way that maximizes the present value of the entire future dividends stream accruing to the firm's initial stockholders subject to a given maximum allowable growth rate for the firm.

In [2], I gave a solution of an extended cash balance problem which disallows overdrafts and shortselling. This solution is incorrect. To show this, we produce a counterexample constructed by Carl Norstrøm. In the notation of the note [2], let x0 = 0, y0 = 3, d(t) = 0, α = 0, T = 10, M1 = M2 = ∞and r2 (t) = .1. Applying the procedure in [2] to this problem, we obtain the policy of impulse-selling all the securities at t = 0. On the other hand, it is obvious by inspection that the optimal policy is to keep the securities until t = 5, at which time, turn them into cash by an impulse-sale. We note, in passing, that the solution by inspection in this case is possible because there is no bounds on the control variable.

I. Introduction, 209.—II. A Walrasian model of trade and protection, 210.—III. An application of the model: The costs of protection in Colombia, 214.—IV. Conclusions, 222.—Appendix, 223.

Reviews the book "1997 Income Taxation of Natural Resources," by C.W. Breeding, F.M. Burke and A.G. Burton.

The article presents the author's reply to comments on his paper "Misleading Tax Figures--A Problem for Accountants." According to the author, ideally, a single, theoretically defensible allocation formula would be prescribed for financial reporting. This method might be incorporated into the tax law. This does not suggest that allocation methods used for tax purposes should conform to GAAP. It was commented that where a consolidated tax liability is allocated for tax purposes in one way, but actual payment reflects a different allocation, the one which is used for payment purposes determine basis. This determination is unclear to the author. Presumably, the commentator is referring to payments among affiliates pursuant to the agent corporation paying the consolidated tax. The commentator seems to be saying that the allocation is ignored when it differs from the payment where both the allocation and payment arise from the group's consolidated tax liability. The commentator correctly observes that where a subsidiary is to be sold, the parent will generally try to minimize the taxable gain on the sale by maximizing its basis in the subsidiary.

In 1971 the California Supreme Court opened the door to a major reform movement to restructure the present system of decentralized school finance. With the exception of Hawaii, elementary and secondary education in the United States is supported primarily by local property taxation supplemented in part by state funded grants-in-aid. The California Supreme Court, in the now famous Serrano rulings, declared the California system in violation of the state constitution's equal protection clause. Similar rulings have also been handed down by the New Jersey Supreme Court (Robinson vs. Cahill) and the Superior Court of Hartford, Connecticut (Horton vs. Meskill). In addition, ten states have recently enacted major reform bills, and legislation is under consideration in several others. The pressure for reform is strong and continuing. As a review of the recent reform proposals indicates, the legislative search for new means of financing local schools is not simply an incremental tinkering with existing laws.' Major changes, often court required, are at issue. Long-run outcomes are uncertain; each proposal has new winners and new losers. When planning a major reform of local school finance, therefore, past experience from incremental policymaking may not be an adequate guide to choice. Long-run general equilibrium predictive models and a clearly specified evaluation rule will be needed. It is the purpose of this paper to develop such a policy framework and to apply the analysis to one region currently in the midst of school reform, the New York metropolitan area. Six alternative reform proposals are considered: foundation aid, two district power equalization plans, property tax credits, expanded Title I assistance under the Elementary and Secondary Education Act, and centralized financing and spending controls. Preferred reforms are selected under utilitarian (promiddle class), Rawlsian (pro-poor), and equal school spending (Serrano) criteria.

While contemporary rhetoric often highlights differences between races, the data show that blacks are becoming less distinguishable from whites in at least one relevant index of performance-market earnings. Relative to white males, black male earnings have gradually increased, and the rise during the 1960's and the early 1970's is larger than that observed earlier. (See Table 1.) Yet, it is clearly the contrast between white and black females that is extraordinary. Twenty years ago the average black woman employed full time was earning approximately half the wage of a similarly employed white woman. By 1975, almost complete racial parity among women had been achieved. In a recent article (1977), Finis Welch and I argued that the advance in the relative income of black males between 1960 and 1970 was due mainly to converging educational distributions by race and a narrowing in wage differentials between regions. Skill levels were relatively constant within cohorts and convergence was accomplished as increasingly similar racial cohorts entered labor markets while other less similar cohorts retired. Finally our test of affirmative action pressures indicated that before 1970 they had little impact. My first objective is to update our previous research to determine if the events of the last decade for males have continued unabated into the mid1970's. Since a complete understanding of the dynamics of blackwhite changes necessitates explaining the patterns for females, my second goal is to expand the wage comparisons to include women. The major explanations for narrowing in racial wage differences can be placed under four general categories. The central idea of the vintage hypothesis is that more recent black cohorts begin their job experiences with larger initial stocks of human capital, relative to whites, than previous cohorts. The second explanation involves migration. The rural-South to urban-North migration has partly been superceded by southern blacks moving to what are by now economically vibrant southern cities. The third category involves the effects of government affirmative action. Since 1970, it is alleged that a series of court cases imposing severe financial penalties on firms for noncompliance with affirmative action goals have added sharp teeth to government jaw boning. Finally, changes in other aspects of market work may be important in narrowing relative wages. This factor is more relevant for women than men and includes the choice of partor full-time work, unique characteristics of certain occupations, and biases due to limiting comparisons solely to working women.

C. Russell Hill, Frank P. Stafford; Intergenerational Wealth Transfers and the Educational Decisions of Male Youth: An Alternative Interpretation, The Quar