Book Reviews

Companion to Contemporary Economic Thought by DAVID GREENAWAY, MICHAEL BLEANEY and IAN M.T. STEWART (eds.), (London, New York: Routledge, 1991, pp xii and 858, ISBN 0 415 02612 1. International Adjustment and Financing. the Lessons of 1985–1991 by C. FRED BERGSTEN, (ed.), (Washington: Institute for International Economics, 1992), pp xiii and 335, US $34.95 hardback, US $24.95 softback, ISBN 0 88132 142 7 and 0 88132 112 5. Financial Instability and the International Debt Problem by GEORGE MCKENZIE and STEPHEN THOMAS (Basingstoke: Macmillan, 1992), pp ix and 211, $40 hardback, ISBN 0 333 46419 2. Down in The Dumps, Administration of the Unfair Trade Laws by RICHARD BOLTUCK and ROBERT E. LIT AN (eds.), (Washington, DC: The Brookings Institution, 1991). pp xii and 350, US $34.95 hardback, US $15.94 softback, ISBN 0 8157 1020 8, 0 8157 1019 4. Industrial Reform in Socialist Countries, From Restructuring to Revolution by IAN JEFFRIES (Aldershot: Edward Elgar Publishing Ltd., 1992), pp x and 294, $45.00 hardback, ISBN 1 85278 380 X.     

EMPIRICAL IMPACT OF PUBLIC INFRASTRUCTURE ON THE JAPANESE ECONOMY*

We study the impact of public capital investment on individual sectors of the Japanese economy using time‐series data for the period of 1970–1998. We employ a production function approach and also estimate a dynamic VAR/ECM model. We find significant differences in the employment effects, output effects and private investment effects across sectors. Public capital investment has a positive effect on employment in the finance, insurance and real estate (FIRE), manufacturing, construction and utilities sectors; on private investment in the FIRE, agriculture, transportation, trade and services sectors; and on output in the mining, FIRE, trade and manufacturing sectors.     

Public Expenditures,Growth, and Distribution in a Mixed Regime of Education with a Status Motive

This paper tackles the issue of growth, distribution, and the provision of public services in a growth model with human capital accumulation where heterogeneous individuals decide whether to attend a publicly funded education regime or a privately funded one. Heterogeneity of individuals is introduced via their status‐motivation which is shown to affect their choice of education. In such a framework, we obtain an inverted‐U shaped relationship between growth and the size of the public education sector. In contrast with the general wisdom, we show that a larger public education sector is compatible with both a reduction of inequalities and an increase of long‐term growth. Although we demonstrate that in a majoritarian system all individuals agree on a lower size of the public education regime than that which maximizes growth, our analysis also highlights the tension between the direct beneficiaries and nonbeneficiaries from the public regime.     

Initial Public Offering Underpricing: The Issuer's View—A Comment

I consider the underpricing of initial public offerings (IPOs) and the wealth transfers implicit in that underpricing. I find that initial returns properly measure the “issue cost” effect of underpricing as a fraction of offer size, as in Ritter (1987) . I present a measure of the wealth effect of underpricing per share retained. In general, the wealth effects on existing shareholders depend on the extent to which they participate in the offering. From the perspective of issuer's wealth, I find that Dawson's (1987) measure is appropriate only in the special case in which all of the prior owners'; shares are sold in the IPO.     

Overaccumulation,Interest, and Prices

I use a financial accelerator model to study interest and prices under boom–busts driven by changes in expectations about total factor productivity (TFP) and credit. I show that inflation falls in the boom phase of the TFP episode and then recovers during the bust, yet rises in the boom phase of the credit episode and then falls during the bust. Furthermore, for both episodes, the overaccumulation of debt relative to capital during the boom is critical for the busts since it implies a fall in credit worthiness. Finally, I show that stricter inflation targeting reduces inefficiencies in all instances but the boom phase of the TFP episode.