Information and Economic Analysis: A Perspective

Ten years ago, I delivered a paper before this group with the title, 'Information and Economic Analysis.' I chose the title deliberately: I did not call the subject on which I was speaking the 'Economics of Information' because to do so would have been to suggest that my topic, like the economics of agriculture, or the economics of industry, or the economics of labour represented another branch of specialisation within economics. I wanted to suggest that informational considerations were, in fact, central to the analysis of a wide variety of phenomena, that they constituted a central part of the Foundations of Economic Analysis. At the time, though economists had long paid lip service to the importance of information, there was little formal literature. The last decade has seen a burgeoning of the literature. It has become to the late 7O's and early 8O's what growth theory was to the early 6O's. And it has been greeted with some of the same scepticism. There seems to be a myriad ofspecial cases and few general principles. The little examples are often contrasted unfavourably with the generality of general equilibrium theory. What have we learned ? Have diminishing returns set in? Are there fruitful directions for future research, and if so, what are they? These are the questions which I wish to address here. The work of the past decade has made, I think, a fundamental and lasting contribution to economic analysis. The contributions have been both negative and positive: we have learned that much of what we believed before is of only limited validity; that the traditional competitive equilibrium analysis, though having the superficial appearance of generality in terms of superscripts and subscripts is indeed not very general; the theory is not robust to slight alterations in the informational assumptions. It is but a special and not very plausible 'example' among the possible set of informational assumptions which can be employed to characterise an economy. At the same time, the theory has been able to provide insights into phenomena about which the traditional model had nothing to say, or which seemed inconsistent or inexplicable within the competitive paradigm. It has provided some of the micro-foundations for macro-economics, it has provided the basis of a New Theory of the Firm, of a New New Welfare Economics, and of a theory of Economic Organisation (including a Comparison of Economic