Page 419 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory Hitesh Jhanji, Lovely Professional University

Notes
Unit-30: Economics of Information

CONTENTS
Objectives

Introduction

30.1 The Theory of Search
30.2 Asymmetric (or Imperfect) Information

30.3 The Efficient Market Hypothesis
30.4 Summary

30.5 Keywords

30.6 Review Questions
30.7 Further Readings

Objectives

After studying this unit, students will be able to:
• Know the theory of search.
• Study the asymmetric information.

• Know the efficient market hypothesis.
• Explain the market indications.

Introduction

Consumer, producer and owner of factors know the status of market under perfect competition.
On this assumption, that they are prudent. It assumes that they know the process of market. Joseph
Stiglitz, Michael Spence and George Akerlof, who received the Nobel Prize in 2001 in Information
Economics, have established that the information of market is actually unreal or insufficient in
real life. But in this field, Prof. Stigler has done tremendous work in his book “The Economics of
Information” in 1961, which gave supports to economics to gain information. In this unit we will learn
the theory of asymmetric information and efficient markets.

30.1 The Theory of Search

The theory of search which was proposed by Stigler in 1961 has made various changes by Rothschild,
Nelson, Salop, Stiglitz, Varian and other economists. Following are the definitions of some models–

412 LOVELY PROFESSIONAL UNIVERSITY