The Economics of Information

Full course description

This is a course in intermediate microeconomics on markets for information goods and the economics of uncertainty and information.

The term “information good” is very broad and includes, in principle, everything that can be digitized, such as books, databases, music, etc. Consequently, trade often takes place via the Internet. Information goods have special characteristics. For example, they typically have a special cost structure with high fixed costs and low marginal costs: making a copy of digital content is essentially costless. We study several topics such as pricing and network effects. One focus will be on “platforms”, which often play an important role in markets for information goods. At the beginning, we introduce concepts from pricing theory and game theory, building on SSC1027 Principles of Economics.

The economics of uncertainty and information studies the role that information plays in the decisions and interactions of individuals, the design of contracts, and the working of markets. In many situations, individuals lack important information before making a decision. For example, sellers don’t know their customers’ willingness to pay, and investors don’t know which investment opportunity yields the highest profit. Often, information is not only incomplete but also asymmetrically distributed among the relevant parties (“adverse selection”, “moral hazard”). A central insight is that asymmetric information often leads to economic inefficiency.