Harnessing the Power of Information: A New Approach to Economic Development
20 Pages Posted: 30 Dec 2004
Date Written: November 2004
This paper offers a new approach to economic development, which we call performance-based policy. The basic idea is to get better information to implement better development decisions. The approach combines the use of information markets with payments for performance.
An information market is a market for a contract that yields a payment based on the outcome of an uncertain future event, such as the number of people infected by HIV in Africa in 2010. We show how these markets can provide real-time information on the likely benefits and costs of different development projects.
We argue that information markets combined with pay-for-performance contracts have the potential to revolutionize the way aid agencies, foundations, non-governmental organizations, and the private sector promote economic development. In addition to providing economic benefits, performance-based policy could lead to greater accountability and transparency in economic development. Despite its great potential, the approach has some limitations, particularly in information markets with little trading activity.
Keywords: Economic development, information markets, development decisions
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