Economics of Information and the Theory of Economic Development

This paper shows how recent developments in the Economics of Information can provide insights into economic relations in less developed countries, and how they can provide explanations for institutions which, in neoclassical theory, appear anomalous and/or inefficient. Sharecropping and other tenancy relationships in the rural sector and wage determination and urban unemployment are both investigated within this perspective.

Promoting Competition in Telecommunications

There is a growing recognition of the importance of competition for the success of market economies, and of the need for government action both to maintain competition and to regulate industries where competition remains limited. In the area of telecommunications, upon which I shall focus today, we have seen examples where privatization has not delivered on its promises: in some cases access in certain vital areas has actually been reduced. Competition and regulatory policy are vital for a market economy. The fundamental theorems of welfare economics, assume that both private property and competitive markets exist in the economy. Until recently, however, emphasis was placed almost exclusively on creating private property, and privatization of public assets. A well designed privatization, where there is a good regulatory framework in place, can raise enormous revenues and at the same time increase services and lower prices.market economies; government; competition; regulate industries; telecommunications

A Simple Proof That Futures Markets are Almost Always Informationally Inefficient

Previous work which showed that prices could aggregate perfectly the diverse information of traders depended critically on the assumption that all agents had constant absolute risk utility. We show that either all agents must have constant absolute risk aversion utility, or all must have constant relative aversion in order for the strong form of the efficient market hypothesis to hold generically.

The Role of Exclusive Territories in Producers' Competition

The central objective of this paper is to show how vertical restraints, which affect intra-brand competition, can and will be used as an effective mechanism for reducing inter-brand competition and increasing producer profits. We show how exclusive territories alter the perceived demand curve, making each producer believe he faces a less elastic demand curve, thereby inducing an increase of the equilibrium price. The use of exclusive territories may increase producers' profits, even if the producers cannot charge franchise fees, and so cannot recapture, from the retailers, the monopoly rents they earn from their exclusive territory: we show that 'double marginalization' effects can be overcome by the strategic effect on producers' competition. We provide a model in which we can clearly specify the full range of feasible contracts between producers and retailers, and show that it is always a dominant strategy for firms to use exclusive territories (so that exclusive territories are used in equilibrium) and that the best situation from the producers' viewpoint may or may not entail franchise fees. In all cases, exclusive territories hurt consumer surplus and reduce total welfare, which yields a different light on vertical restraints from a competition policy perspective.

Sorting Out the Differences Between Signaling and Screening Models

In this paper we analyze games in which there is trade between informed and uninformed players. The informed know the value of the trade (for instance, the value of their productivity in a labor market example); the uninformed only know the distribution of attributes among the informed. The informed choose actions (education levels in the Spence model); the uninformed choose prices (wages of interest rates). We refer to games in which the informed move first as signaling games - they choose actions to signal their type. Games when the uninformed move first are referred to as screening games. We show that in sequential equilibria of screening games same contracts can generate positive profits and others negative profits, while in signaling games all contracts break even. However, if the indifference carves of the informed agents satisfy what roughly would amount to a single crossing property in two dimensions, and some technical conditions hold, then all contacts in the screening game break even, and the set of outcomes of the screening game is a subset of the outcomes of the corresponding signaling game. In the postscript we take a broad view of the strengths and weakness of the approach taken in this and other papers to problems of asymmetric information, and present recommendations for how future research should proceed in this field.

The Financial System, Bussiness Cycles and Growth

Los economistas han reconocido desde hace mucho tiempo la importancia del sistema financiero. Muchas de las discusiones tratan al sistema financiero aisladamente, o lo relacionan sólo superficialmente a la macroeconomía. Este artículo discute los intrincados lazos entre el sistema financiero y la macroeconomía. El principal resultado de los modelos microeconómicos de finanzas desarrollados en el pasado cuarto de siglo han mostrado cuan diferente es el sector financiero de otros sectores, incluyendo la persistencia de situaciones de no equilibrio en los mercados y equilibrios ineficientes. Aquí hay una aplicación de esas ideas a una discusión de los modelos macroeconómicos basados en finanzas, usándolos para arrojar luz sobre las causas de las fluctuaciones cíclicas de los negocios y algunos de los determinantes del crecimiento. Finalmente, en la última parte de la discusión hay algunas respuestas a desarrollos en flujos de capitales internacionales, incluyendo las cuestiones de convertibilidad de la cuenta de capital y la respuesta a crisis.Financial System; Bussiness Cycles; modelos microeconómicos

The Welfare Economics of Moral Hazard

This paper shows that, except in certain limiting cases, competitive equilibrium with moral hazard is constrained inefficient. The first section compares the competitive equilibrium and the constrained social optimum in a fairly general model, and identifies types of market failure. Each of the subsequent sections focuses on a particular market failure.

Making Globalisation Work – The 2006 Geary Lecture

This paper was delivered as the Geary Lecture 2006 at the Burlington Hotel, Dublin, Ireland on 30 August. The Geary Lecture is organised each year in honour of Professor R. C. Geary (1896–1963) the first Director of The Economic and Social Research Institute and the most eminent Irish Statistician and Economist of the twentieth century. This lecture was organised in association with Penguin Books and The Irish Times.

On the measurement of social progress and well being: some further thoughts

Two years after the delivery of the report on The Measurement of Economic Performances and Social Progress (Stiglitz-Sen-Fitoussi),this paper provides some further reflections on the subject. Since 2008, when the work of the Commission began, the world has experienced several dramatic events which all call into question our measurement systems and the policies which were grounded on them: the financial crisis of 2007-2008, the grave events in Japan, the Sovereign debt crisis, and the revolutions in the Arabic world. In particular, the Japanese earthquake and its aftermath underlines three central shortcomings of our metrics: the measurement of the economic product,the measurement of well being, and the measurement of sustainability. For economists, these concerns are especially important, because we often rely on statistical (econometric analyses) to make inferences about what are good policies. Those inferences are only as reliable as the metrics that they are based on. Our statistical systems should tell us whether or not what we are doing is sustainable, economically, environmentally, politically, or socially and whether proposed policies will in fact enhance well-being . There would be little sense in pursuing policies aimed at increasing some widely used metric like GDP ifsuch policies lead to a decrease in well being.1- Economic indicators 2- Gross Domestic Products 3-Social indicators 4- Well being 5- Sustainability

Money, Imperfect Information and Economic Fluctuations

This paper summarizes the macro-economic and, in particular, monetary and financial market implications of recent developments in the micro-economic theory of imperfect information. These micro-economic models which lead to credit-rationing on the one hand and limitations in the availability of equity type financing on the other can account for a wide range of observed business cycle and monetary phenomena. These include (a) unemployment, (b) the existence of Keynesian-type multiples, (c) the observed lack of production smoothing in response to cyclical fluctuations in demand, (d) the impact of monetary policy on business activity despite the absence of significant changes in real interest rates, and (e) price rigidities which arise from rational firm decisions (not as an a priori assumption).