Symposium on Economics of Information: Introduction

Most of the papers in this symposium were presented at a conference on the economics of information held at Stanford in April 1975, under the auspices of the National Science Foundation--National Bureau of Economic Research (four of the papers, those by Heal, Salop, Spence and Stiglitz, had been submitted to the Review earlier, but because of the similarity of topic, are published with the conference papers). The papers, though all related to the problems arising from costly information, are diverse both with respect to the question addressed, the techniques of analysis employed and the particular markets investigated. A basic theme running through most of the papers is that imperfect information alters, in a fundamental way, the conventional notion of a market, with buyers and sellers coming together to trade; in a full information equilibrium there is a single price, markets clear and all individuals and firms view themselves as price takers. The price charged is independent of the quantity purchased. Although the notion of the market-place is often thought of as an idealization, even when there is not a single market-place at which all transactions occur, the economy behaves as if there were a single market-place; this will be true so long as there are some arbitrageurs to make sure that the "law of single price" prevails. Finally, conventional theory has shown that under fairly weak conditions such a competitive equilibrium exists and is Pareto Optimal. Recent developments in the economics of information, including the papers presented here, have shown that ail of these statements are questionable. In the papers presented here, there is not a single price in equilibrium; firms do not act as price takers; prices do more than just clear markets--they convey information; prices charged may depend on the quantity purchased; competitive equilibrium may not exist and may not be Pareto Optimal. The basic character of how we ought to view the competitive economy is altered if we take seriously imperfections of information