Theory of Information and Privacy

Abstract

Despite more than thirty years of research in information economics, the knowledge about the effects of asymmetric information in markets is far from complete. There is a large body of economic literature dealing with information problems, but this literature is incoherent, because there are different approaches to information. Some authors regard it as economic endowment, others as tradable good. There are microeconomic and macroeconomic perspectives. The economic implications of information are multi-dimensional and no model can integrate them all at once. For providing an accessible overview, this chapter brings together different strands of the economic literature. In the following, I discuss information markets, institutional economics and the microeconomics of information and privacy. To fully understand the competition in information markets, some basic features of information must be understood first, such as non-excludability, non-rivalry, immateriality or the structure of the production costs. Next, it is important to appreciate other factors that do play a role: network economics as well as other demand-side and supply-side features. Further the reader is introduced to the economics of markets for personal information. Credit reports are information goods that are compiled from information items specifying the financial and consumption behavior of an individual. Some of the problems identified in the sections on information markets re-emerge here with interesting welfare implications for the individual.