THE paradigm of information economics has begun to give pause to policy judgment calls that can lead to inefficient outcomes in consumer and financial markets. Since the 1970s, the discussion on information asymmetry has been raging and now appears to have reached mainstream acclaim.
In 2001, George Akerlof, Michael Spence and Joseph Stiglitz won the Economics Nobel Prize “for their analysis of markets with asymmetric information”. Before them, for related works, James Mirrlees and William Vickrey had won the Prize in 1996 “for their fundamental contributions to the economic theory of incentives under asymmetric information”.
How much does this matter? Well, for starters, information in its present avatar is already viewed as a national resource that can substantially benefit countries in their social and economic growth — markedly indispensable for global competitiveness, for science and industry, and for education and democracy.
On that score, the conferral of this coveted prize on these illustrious economists proves that the information calculus (imbued with imperfections and asymmetries) can have serious implications for economic policy and governance. As it turned out, particularly in its analytical methods to explain economic institutions, even small imperfections of information could have profound effects on policy development and how the economy behaves.
In significant ways, the evidence-based analyses of these Nobel Prize winners have transformed the way economists think about the functioning of markets and the measurable economic value that infonomics (a branch of microeconomic theory that studies how information and information systems affect an economy and economic decisions) bring to the strategic, operational and financial management of social and economic institutions. Already, researchers (pairing empirical data with expert knowledge) have started to utilize and extend these original models to analyze monetary and employment policies, just as policymakers use them to transform business processes and service delivery.
How often have we thought that the information revolution would automatically translate into economic benefits? And besides the cascading effect of information technology on organizational design, to what extent has the information age changed the structure of the world economy or reduced the power of governments to undertake independent economic policies?
Gwang-Jo Kim, Director of UNESCO Bangkok, believes that economic growth and the solutions to persistent civic problems are a function of the creative and lateral use of information not only inside government, but among citizens, entrepreneurs and researchers, as increasingly the concept of the information and knowledge society replaces the longstanding paradigm of the industrial society.
“How well an individual, an organization, and an entire society can harness, access, share, and make use of available information will ultimately decide their ability to generate economic growth and to enhance the quality of life for all,” he writes.
Yet, unless there is sufficient rigorous analysis of the data collected by coordinated teams of information scientists (the formation of a new generation of decision-makers to work alongside policymakers, as an expert explains it), the decisions and outcomes reached with respect to resource allocation, income taxation and regulations may be incoherent with the social and economic realities of the populace.
An understanding of the role of information is crucial to the design of policies to revive economic growth and exploit the opportunities created by our improved economic tools and instruments. The information revolution offers incredible potential for improving policy and decision-making at every level – from the banana producer to multinational corporations.
Already “Big Data” (which admittedly can encourage spurious correlations) gives us unprecedented scope to understand our society, and improve the way we live and work. Increasingly, as the weightlessness of output has become the defining feature of economic development in the information age, the production and consumption focus is shifting away from tangible products to information and services. Data-driven policies are already having a real-world impact in several countries in terms of creativity and productivity.
So how can data be used to help policymakers focus on the policies and investments that would have the biggest positive impact on society? Going on the insights of Keith D. Shepard of the World Agroforestry Centre (ICRAF) in Kenya, information offers the opportunity to inspire economic change and engender sustainable development: “If the information revolution is to be harnessed in the service of sustainable development, the best practices of this field must be incorporated into the effort. The first step is to identify and frame frequently recurring decisions. In the field of development, these include large-scale decisions such as spending priorities – and thus budget allocations – by governments and international organizations. The second step is to build a quantitative model of the uncertainties in such decisions, including the various triggers, consequences, controls, and mitigants, as well as the different costs, benefits, and risks involved. Incorporating – rather than ignoring – difficult-to-measure, highly uncertain factors leads to the best decisions. The third step is to compute the value of obtaining additional information. So we need to know where additional data will have value for improving a decision and how much we should spend to get it.”
The preponderant idea, I suppose, is the need to underscore the fact that for the realization of economic development, not only is access to information important, but also the relevance and usefulness of the information. Informatics has already had both a determinable and enduring effect on how we view, approach and navigate economic policy, and is likely to have an even greater impact in the future. The new age of the policy enlightenment is upon us, where information is king and knowledge is power.
For comments, write to Clementwulf@hotmail.com. Clement Wulf-Soulage is a Management Economist, Published Author and Former University Lecturer.