This research examines how investment experience and financial literacy impact investment‐related judgments. Financial literacy refers to a person's knowledge of fundamental financial concepts. I begin by documenting investors' demographic characteristics and financial literacy using a relatively large sample of participants ( n > 2,000) recruited from Amazon's Mechanical Turk under different categories of investment experience, which I benchmark against national samples of financial capability skills in the United States. I then replicate a sample of three accounting research experiments, varying the type and depth of the underlying accounting issue. Across the three experiments, the data show two main results: First, investment experience strengthens the influence of financial accounting disclosures on participants' investment‐related judgments. Second, financial literacy further strengthens the influence of financial accounting disclosures on investors' (but not noninvestors') judgments. Collectively, these findings suggest that investment experience and financial literacy can help to identify individuals who are more likely to be able and willing to study financial reporting information with reasonable diligence as they form their investment‐related judgments.

Résumé. L'auteur entend déterminer laquelle parmi trois possibilités de présentation de l'information relative aux gisements pétroliers et gaziers dans le rapport annuel—coûts d'origine capitalisés, quantités ou flux monétaires actualisés—a un contenu marginal en information, par rapport au bénéfice par action. Le contenu en information est défini comme étant la mesure dans laquelle l'option retenue pour présenter les gisements tient compte de l'évolution du prix des actions ordinaires. L'auteur a recours à l'analyse de régression multiple afin d'évaluer dans quelle mesure chacune des trois options de présentation de l'information relative aux gisements est indicative du rendement des actions ordinaires, compte tenu de l'information livrée par un indicateur du bénéfice par action. Il recueille dans les rapports annuels de 67 sociétés canadiennes d'exploration et de mise en valeur du pétrole et du gaz naturel l'information relative à chaque année de la période s'échelonnant de 1983 à 1987. Les résultats de l'étude prouvent que le bénéfice par action présente un certain contenu en information. Pour l'ensemble de la période de cinq ans, l'étude prouve également que les coûts capitalisés, les quantités des réserves et les flux monétaires actualisés présentent un contenu marginal en information; les résultats ne sont cependant pas constants lorsqu'on analyse une à une les années de la période, quelle que soit la forme de présentation utilisée.

The purpose of this paper is to determine which of three alternative annual report disclosures of oil and gas reserves, namely historic capitalized costs, quantities, or discounted cash flows, contributes information content incremental to that provided by earnings per share. Information content is defined as the ability of a reserves disclosure to account for changes in common stock prices. Multiple regression analysis was used to evaluate the extent to which each of the three alternative reserves disclosures account for common stock returns after first recognizing the information provided by an earnings per share variable. The annual reports of 67 Canadian oil and gas exploration and development corporations were used to gather the data for each of the years 1983 to 1987. The results indicate that the earnings per share provides some significant evidence of information content. The capitalized costs disclosure, the quantities disclosure, and the discounted cash flows disclosure provide significant evidence of incremental information content in a pooled analysis of the five‐year period; however, the results for any one disclosure method are not consistent throughout the analyses of each of the five years.

I consider an agency model in which an agent, having acquired private post‐contract predecision information, is allowed to breach the contract by paying the principal predetermined damages. The relationship of this model to the standard no‐breach agency model is demonstrated and I argue that simplifying the analysis by restricting attention to no‐breach models may yield incorrect conclusions. The shape of an optimal breach contract is then discussed and it is demonstrated that an optimal contract cannot include a severance payment. Next, I consider an alternative contractual arrangement whereby the agent may purchase access to private information prior to contracting. In this case, all the advantages of the breach institution are maintained, while possible exogenous (legal) restrictions on damage payments are avoided. The paper concludes by suggesting implications the study may have for legal research on contracts and judicial systems. Résumé. L'auteur étudie un modèle de relation de mandataire dans lequel le mandataire, ayant acquis de l'information privée après la signature du contrat et avant la prise de décision, est en droit de mettre fin au contrat en réglant au mandant les dommages établis au préalable. L'auteur démontre la relation entre ce modèle et le modèle standard sans convention de rupture et soutient que le fait de simplifier l'analyse en se bornant à étudier les modèles sans convention de rupture peut mener à des conclusions inexactes. La forme du contrat optimal comportant une convention de rupture est ensuite traitée et l'auteur démontre qu'un contrat optimal ne peut inclure d'indemnité de rupture. Il analyse ensuite une disposition contractuelle de rechange selon laquelle le mandataire peut acheter l'accès à de l'information privée avant de s'engager. Dans ce cas, tous les avantages de la convention de rupture sont maintenus, alors que les restrictions exogènes (légales) possibles relativement au règlement de dommages sont évitées. L'auteur conclut en donnant une idée des conséquences que pourrait avoir cette étude pour la recherche en droit portant sur les contrats et les systèmes judiciaires.

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.