Ulrich Volz charts the half-century long path of an economics giant.
Joe Stiglitz was awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2001 together with George Akerlof and Michael Spence “for their analyses of markets with asymmetric information.” Stiglitz’ contribution to economics was highlighted by the prize committee as showing “that asymmetric information can provide the key to understanding many observed market phenomena, including unemployment and credit rationing.”
In 2000, shortly before receiving his award, Stiglitz himself neatly highlighted the contributions of the economics of information to twentieth century economics: “The recognition that information is imperfect, that obtaining information can be costly, that there are important asymmetries of information, and that the extent of information asymmetries is affected by actions of firms and individuals, has had profound implications for the wisdom inherited from the past, and has provided explanations of economic and social phenomena that otherwise would be hard to understand.”
As Stiglitz stressed in his Nobel lecture, problems of information are central to understanding not only market economics but also political economy. Stiglitz’ own work has very much shaped information economics and how we think about economics today.
That people take decisions under imperfect information most of the time will sound fairly obvious to the average person on the street, yet many economic models would assume that everybody has perfect information – one of the conditions of perfect competition. By including information frictions and asymmetries, Stiglitz showed that