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This is the second of six volumes in a series of selected scientific papers by one of the world's most distinguished economists. Volume I presented the basic concepts in the Economics of Information, showing that markets in which information was imperfect or asymmetric (where some individuals know things that others don't) behave markedly different from how they would if information were perfect. Volume II, with papers written between 1969 and 2009, explores the implications ofthe New Information Paradigm for labor, capital, and product markets. This New Paradigm, for which Stiglitz was awarded the Nobel Memorial Prize in Economics in 2001, has fundamentally changed the way we think about every aspect of economics, raising new questions on corporate governance, and leadingus to reconsider old questions on corporate finance, the relationship between finance and the economy, and the theory of economic incentives. While this volume focuses on the application of basic principles, it also extends the theory in important ways, showing the fruitfulness of Stiglitz's research strategy. In doing so, the papers set the ground for questioning some prevailing doctrines: key market phenomena cannot be explained by markets with rational expectations, even when information is imperfect. It demonstrates that how societies organize the obtainment, processing, and transmitting of information is as important as howthey organize the production and distribution of goods. Indeed, the two issues are inseparable. The papers thus lay the foundations of a New Institutional Economics, not only describing how institutions (like sharecropping or banks) work and affect resource allocations, but why they arise and take onparticular forms.
Table of Contents
Preface to Volume II I: SURVEYS AND PERSPECTIVES Introduction 1. Information and Economic Analysis: A Perspective 2. Information and Competition II: CAPITAL MARKETS IIA: Information and Capital Markets Introduction 3. Information and Capital Markets 4. Using Tax Policy to Curb Speculative Short-Term Trading 5. Ownership, Control and Efficient Markets: Some Paradoxes in the Theory of Capital Markets 6. The Informational Content of Initial Public Offerings, with I. Gale 7. A Simple Proof that Futures Markets are Almost Always Informationally Imperfect, with I. Gale IIB: Credit and Equity Rationing Introduction 8. Incentive Effects of Termination: Applications to the Credit and Labor Markets, with A. Weiss 9. Credit Rationing and Collateral, with A. Weiss 10. Credit and Equity Rationing in Markets with Adverse Selection, with T. Hellmann IIC: Structure and Functioning of Capital Markets Introduction 11. Information, Finance and Markets: The Architecture of Allocative Mechanisms, with B. Greenwald 12. Banks as Social Accountants and Screening Devices for the Allocation of Credit, with A. Weiss 13. Banks versus Markets as Mechanisms for Allocating and Coordinating Investment 14. Short-term Contracts as a Monitoring Device, with P. Rey 15. Pure Theory of Country Risk, with J. Eaton and M. Gersovitz 16. Discouraging Rivals: Managerial Rent-Seeking and Economic Inefficiencies, with A. Edlin III: INFORMATION AND LABOR MARKETS AND THE GENERAL THEORY OF INCENTIVES IIIA: Incentives Introduction 17. A Survey of the Economics of Incentives 18. Incentives, Risk and Information: Notes Toward a Theory of Hierarchy 19. Prizes and Incentives: Toward a General Theory of Compensation and Competition, with B. Nalebuff 20. Design of Labor Contracts: Economics of Incentives and Risk-Sharing IIIB: Efficiency Wages Introduction 21. Alternative Theories of Wage Determination and Unemployment in L.D.C.'s: The Labor Turnover Model 22. Alternative Theories of Wage Determination and Unemployment: The Efficiency Wage Model 23. Equilibrium Unemployment as a Worker Screening Device, with B. Nalebuff and A. Rodriguez IIIC: Wage Distributions, Search, and the Efficiency of Market Equilibrium Introduction 24. Equilibrium Wage Distribution 25. Labor Turnover, Wage Structure & Moral Hazard: The Inefficiency of Competitive Markets, with R. Arnott IV. THE PURE THEORY OF MORAL HAZARD AND INSURANCE Introduction 26. Risk, Incentives and Insurance: The Pure Theory of Moral Hazard 27. Price Equilibrium, Efficiency, and Decentralizability in Insurance Markets, with R. Arnott 28. Equilibrium in Competitive Insurance Markets, with Moral Hazard with R. Arnott V. INFORMATION AND PRODUCT MARKETS Introduction 29. Imperfect Information in Product Markets 30. The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents, with S. Salop 31. Equilibrium in Product Markets with Imperfect Information 32. Competition and the Number of Firms in a Market: Are Duopolies More Competitive Than Atomistic Markets?