The Revolution of Information Economics: The Past and the Future

29 Pages Posted: 11 Sep 2017

See all articles by Joseph E. Stiglitz

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: September 2017

Abstract

The economics of information has constituted a revolution in economics, providing explanations of phenomena that previously had been unexplained and upsetting longstanding presumptions, including that of market efficiency, with profound implications for economic policy. Information failures are associated with numerous other market failures, including incomplete risk markets, imperfect capital markets, and imperfections in competition, enhancing opportunities for rent seeking and exploitation. This paper puts into perspective nearly a half century of research, including recent advances in understanding the implications of imperfect information for financial market regulation, macro-stability, inequality, and public and corporate governance; and in recognizing the endogeneity of information imperfections. It explores the consequences of recent advances in technology and the policy challenges and opportunities they present for competition policy and policies regarding privacy and transparency. The paper notes the role that information economics played in stimulating other advances in economics, including contract theory and behavioral economics. It reinvigorated institutional economics, showing how institutions mattered, in some cases explaining institutional features that could not be well-understood in the conventional paradigm, and in others showing how institutional responses to market failures might or might not be welfare enhancing. The paper argues that the new paradigm provides a markedly different, and better, lens for looking at the economy than the older perfect markets competitive paradigm.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Stiglitz, Joseph E., The Revolution of Information Economics: The Past and the Future (September 2017). NBER Working Paper No. w23780. Available at SSRN: https://ssrn.com/abstract=3035112

Joseph E. Stiglitz (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
814 Uris Hall
New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
137
Abstract Views
763
rank
210,616
PlumX Metrics