The Value of Information in Growth and Development

HKIMR Working Paper No. 3/2006

27 Pages Posted: 20 Aug 2007

See all articles by Charles I. Jones

Charles I. Jones

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: February 2006

Abstract

This paper explores the role of information in the theory of economic growth and development. They way it is used here, information/ refers to every feature of an economy, including not only the economic environment, but also the institutions like markets and government policies that affect the allocation of resources. The first half of the paper considers a model where consumers are faced with an enormous range of possible goods they can purchase, so many that they do not know exactly how much utility they would get from consuming each good. Improvements in this information possessed by consumers increases welfare by making the allocation of resources more efficient, and these effects may be large in some cases. The second half extends these ideas to the production side of the economy and argues that a model where different kinds of information are crucial to successful production can lead to an information-based theory of TFP. In the theory outlined here, large differences in incomes can be explained by small differences in the ease with which people in a given country can acquire four different kinds of complementary knowledge.

JEL Classification: O40, E10

Suggested Citation

Jones, Charles I., The Value of Information in Growth and Development (February 2006). HKIMR Working Paper No. 3/2006. Available at SSRN: https://ssrn.com/abstract=1008222 or http://dx.doi.org/10.2139/ssrn.1008222

Charles I. Jones (Contact Author)

Stanford Graduate School of Business ( email )

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HOME PAGE: http://www.stanford.edu/~chadj

National Bureau of Economic Research (NBER)

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