migrants in their village of origin may exceed by a significant margin their marginal productivity, so that industrialization eliminates a "large slack" between rural incomes and the marginal product of rural labor. The only difference is in words; the early writers accounted for the slack in terms of moral economy concerns, whereas in the modern phraseology, it is reinterpreted as an adverse selection bias of individuals who find it more attractive to draw benefits from the informal insurance scheme in their village than to look for work in a distant city. Of course, such is the subtlety of economic organization theory that alternative interpretations of given empirical facts may imply different policy recommendations.

An interesting discussion evaluates Basu's suggestion that the informal credit market is uncompetitive and offers monopolistic landlords opportunities to skim the cream from investment projects through discriminating pricing; we return to this in the paper's final "loose ends" section.

Formal saving institutions are weak in developing countries. The author provides a careful discussion, which complements Gersovitz's, of devices which involve risk spreading over crops or over locations, and traditions that obligate relatives and neighbors to support persons in difficulty. The chapter provides an useful survey of such institutions as Bangladesh's Grameen Bank, which extends small credits backed by group solidarity, and the Raiffeisenkassen that evolved in Germany during the last century, which succeeded in mediating credit across space as commercial banks do, while using information on creditors that is available only locally.

The discussion of domestic saving and of its intermediation does not cover urban credit in any detail, thus it is not possible to implement fully this paper's intention of assessing both the sources of factors and the intermediation that channels them to productive uses. It would be interesting to learn more about, for example the impact on investment and on the funding of firms of the hyper inflation and sweeping bank crashes that have plagued some developing countries.

It would have been worthwhile to bring at greater length the problem of pensions, which has come to the foreground as the apparent success of the Chilean pensions scheme has come to the attention of economists. Throughou **t** he South, the effect of development in weakening family ties and in reducing the birthrate is undermining traditions that motivated humans to support their parents. Individuals will either have to save for old age, or rely on the state to provide pensions (most probably according to some redistribution scheme). The implications for domestic saving are huge. In Chile, domestic saving went up from 6 percent to 26 percent of GDP, in part thanks to the introduction of an individual pension scheme that is run on accumulation lines<sup>35</sup> . The history of pension schemes is ghastly in Latin America, as states have repeatedly grabbed assets and blocked indexation but the Chilean scheme's apparent success has led to imitations. In China, the "one child family" policy must be a reason for the country's huge saving rate, as individuals provide for their own old age. The Indian state of Kerala has decided to create a pension system for older agricultural workers, to be funded by a redistribution scheme apparently (so that it will not boost saving); this is likely to be imitated by other states, and a powerful lobby will fight to improve whatever initial benefits are granted and create over the years a large budget burden, while probably reducing the birthrate (already low).

35 Morande (forthcoming in the World Bank Research Observer, cited in a NBER conference report (I suppose you have the proper reference).

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