PRELIMINARY. COMMENTS APPRECIATED.

This paper explores the role of information in the theory of economic growth and development. They way it is used here, information refers to every feature of an economy, including not only the economic environment, but also the institu-tions like markets and government policies that affect the allocation of resources. The rst half of the paper considers a model where consumers are faced with an enormous range of possible goods they can purchase, so many that they do not know exactly how much utility they would get from consuming each good. Improvements in this information possessed by consumers increases welfare by making the allocation of resources more efcient, and these effects may be large in some cases. The second half extends these ideas to the production side of the economy and argues that a model where different kinds of information are cru-cial to successful production can lead to an information-based theory of TFP. In the theory outlined here, large differences in incomes can be explained by small differences in the ease with which people in a given country can acquire four different kinds of complementary knowledge