Harnessing the Power of Information: A New Approach to Economic Development

20 Pages Posted: 30 Dec 2004

See all articles by Robert W. Hahn

Robert W. Hahn

University of Oxford, Smith School; Georgetown University

Paul C. Tetlock

Columbia Business School - Finance

Date Written: November 2004

Abstract

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

Suggested Citation

Hahn, Robert W. and Tetlock, Paul C., Harnessing the Power of Information: A New Approach to Economic Development (November 2004). AEI-Brookings Joint Center Working Paper No. 04-21. Available at SSRN: https://ssrn.com/abstract=641444 or http://dx.doi.org/10.2139/ssrn.641444

Robert W. Hahn (Contact Author)

University of Oxford, Smith School ( email )

Oxford
United Kingdom

Georgetown University

Georgetown Center for Business and Public Policy
Washington, DC 20057
United States

Paul C. Tetlock

Columbia Business School - Finance ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www0.gsb.columbia.edu/faculty/ptetlock/

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