Information Economics Book

List of figures     xii
List of tables     xiv
List of boxes     xv
List of problem sets     xvii
Preface     xxi
Why study information economics?     1
How to use this book     5
The purpose of the book     5
Ways of reading the book     6
The structure of the book     8
Using the book for teaching     8
Solutions to problem sets and other supporting material     9
Information as an economic good     11
What is information?     13
Introduction     13
Main ideas: The strangest good of all     14
Theory: Describing, comparing and updating information     17
Conclusions and further reading     26
Problem sets: Medical and financial testing     27
The value of information     31
Introduction     31
Main ideas: The source(s) of information value     32
Theory: Knowledge is power     37
Application: The resolution of uncertainty     50
Application: The informational cost of mediocrity     53
Conclusions and further reading     56
Problem sets: Precious advice     56
The optimal amount of information     61
Introduction     61
Main ideas: Is it worth the cost?     62
Theory: Deciding at the margin     63
Application: The central bank's inflation forecast     67
Application: Search     70
Conclusions and further reading     79
Problem sets: Paying, searching, and waiting for information     80
The production of information     83
Introduction     83
Main Ideas: Too little research or too much?     86
Theory: The incentive to innovate     88
Application: Creative destruction     97
Application: Rating agencies     105
Application: Why are banks supervised?     107
Conclusions and further reading     109
Problem sets: Produce or copy-sell or give away?     110
How the market aggregates information     115
From information to prices     117
Introduction     117
Main ideas: Revealing information through prices     118
Theory: The market as an information processor     121
Application: Terrorism futures and prediction markets     135
Application: Should bank supervisors look at market prices?      137
Conclusions and further reading     142
Problem sets: Two heads know more than one     143
Knowing facts or reading thoughts?     145
Introduction     145
Main ideas: Fundamental versus strategic uncertainty     146
Theory: Higher-order information     148
Application: Keynes in the lab     162
Application: Conformism and learning from debate     165
Application: Betrayals and mediation     167
Conclusions and further reading     169
Problem sets: The art of outguessing others     171
Coordination problems     173
Introduction     173
Main ideas: Red or white?     174
Theory: Coordination and multiple equilibria     180
Application: Bank runs     190
Conclusions and further reading     200
Problem sets: "Should I stay or should I go?"     201
Learning and cascades     203
Introduction     203
Main ideas: "Always stand at the longest queue"     205
Theory: Observational learning     207
Application: Learning in repeated games     221
Conclusions and further reading     224
Problem sets: A bath in the crowd      224
The macroeconomics of information     227
Introduction     227
Main ideas: Who acquires information and why?     228
Theory: Information is imperfect and costly     232
Application: Central bank transparency     245
Conclusions and further reading     248
Problem sets: As time goes by     249
Asymmetric information     253
The winner's curse     255
Introduction     255
Main ideas: How to lose by winning     257
Theory: The importance of conditional expectations     260
Application: The underpricing of IPOs     266
Application: Prices and the winner's curse     269
Conclusions and further reading     270
Problem sets: Cursing winners     271
Information and selection     273
Introduction     273
Main ideas: When information prevents trading     274
Theory: The market for lemons     277
Application: The insurance destruction effect     286
Application: Annuities     293
Conclusions and further reading     300
Problem sets: Buying the cat in a bag     302
Optimal contracts      305
Introduction     305
Main ideas: The economic lie detector     307
Theory: Optimal contracts     312
Application: Price-quality discrimination     322
Application: Subordinated debt     328
Conclusions and further reading     334
Problem sets: Deal or no deal?     335
The revelation principle     341
Introduction     341
Main ideas: Many lies, one truth     342
Theory: The relevation principle     343
Application: The debt contract     349
Application: Auctions     356
Application: Why Enron should not have happened     360
Conclusions and further reading     362
Problem sets: Know your value     364
Creating incentives     367
Introduction     367
Main ideas: Delegation and moral hazard     369
Theory: Incentive contracts     371
Application: Bank deposit insurance and risk taking     381
Application: Credence goods     389
Conclusions and further reading     395
Problem sets: Getting things done     397
The economics of self-knowledge     401
Me, Myself, and I      403
Introduction     403
Main ideas: Contracting with oneself     404
Theory: Intertemporal choice and self-management     411
Application: Soft paternalism     425
Conclusions and further reading     428
Problem sets: Tomorrow I will     430
Notes     433
Bibliography     439
Index     449