Information economics, also known as economics of information, is the study of how different degrees of information affect economic analysis. Since it’s usually studied as a part of microeconomic theory, information economics mainly deal with micro problems, although it is easy to see examples in our own life: why should I study a college degree? Should I look for a job with a fixed salary or should I go for incentives-based salaries? If I quit smoking, drinking or driving, should I stop paying healthcare insurance?
In this Learning Path we’ll learn the basics about information economics, especially about adverse selection and moral hazard, in order to make a thorough analysis in the next LP. We’ll start with:
Information economics, a basic definition.
Complete and incomplete information, their differences and how to deal with them;
Perfect and imperfect information, taking special interest into
Asymmetric information, the main reason why information economics exist.
Problems and how to deal with them:
Adverse selection, an ex-ante problem;
Moral hazard, an ex-post problem;
Agency theory, the frame we’ll use to analyse these issues.