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Introduction to Economic Information

The information economy is sometimes also known as the 'knowledge economy,' the 'new economy,' 'network economy,' and the economy of information. It is a situation where productivity and competitiveness of parts or agents within an economy depend on mon their ability to generate, process, and apply information efficiently. We are living in a world where knowledge is everything, and the business really is not left behind, as it depends on field data and collected information to make decisions. Today both consumers and the producers need information since decision making is part and parcel of human existence. Without information, many economies would have no future. Some of the best economies we see today are growing bigger because they invested more in information communication technology. We are living in a world where information runs everything.

Economic growth and development are among the primary goals of all governments across the globe. Sometimes they use data from past economies to determine what might happen next and what to do in case of a recession or an economic bubble. In any case, information becomes the foundation of making decisions that influence the right direction of economic development.

People have always relied on information to exchange ideas about their jobs and run their lives effectively. And with the emergence of social media, the world has more access to various information channels. Whereas this is also information, the information economy is quite different, majorly because it collects more relevant information at the right time. Consequently, production in the information economy can be tuned more and fined in ways we have never imagine. Information plentifulness in the commercial setting does not rely on how much is available, but in the pervasive use of the information and communication technology. For the past few years, economic information has become one of the main subjects of study in universities. It is generally applied to offer insight into what the world of business needs to understand.

Characteristics of information

A stated above economic information is very different from regular information. Are certain features that make it unique, as discussed before.


The information economy is global. This is a historical new reality that economic enthusiasts have to understand that the global economy can work as an independent variable in real-time on a global scale. In other words, firms and companies no longer have to rely on the limited information available with their reach; rather, they can reach a worldwide base to access skilled labor with a simple step. There is a free flow of capital between countries, and different economies can utilize this capital any time they want.  

We can always see just how much the world economy has grown in terms of the free flow of information. Today, producers can easily access past data through online and other sources and use the same to produce new products. If, for instance, a company wishes to try out a new product, they will need to know how it will be accepted on their target market, they need existing information for this.

However, some economists argue that the truly global economy has not been achieved yet. One such expert is Stephen Cohen, who says that mobility of labor is undermined due to people's xenophobia. We still witness strict immigration policies. Then there are the issues of the multinational corporations, which still maintain their assets and strategic command centers from their home countries. Besides this, capital is still limited because of banking and finance policies. Even though technology has created the world into a global community, the fact that some firms cannot perform operation freely beyond borders tells just how much more there is still to go.

However, Castells adds that even though globalization is not fully realized yet, it is only a matter of time. It is no longer a question of if, but rather when. Government regulation and policies remain a significant player in restricting globalization. Since international boundaries are not fully opened yet, there is still a lack of free-flow of goods and services.

Even so, business information has already laid the foundation for globalization. In certain regions, like the European Union, there is a free flow of information between member states whereby businesses operate freely without too many restrictions. This process has been expanding roots across the globe, and sooner or later, we shall witness a better economic world with more businesses accessing important information that can affect their causes of action.

Information economy if highly productive

Information influences knowledge, which leads to making more informed decisions. When people make decisions based on what they know, it is more likely for them to get full results from their ventures. It is all about understanding what is happening on the global scale and applying the same, or rather, manipulating it to meet your needs.

William Nordhaus is a member of the US National Bureau of Economic Research, who has wide experience in economic matters. He commends on the issue of information economics, stating that "Productivity growth in the new economic sector has made a significant contribution to the economy-wide productivity growth…" Nordhaus goes ahead to quite the sector between 1999 and 2001, where productivity growth without information economy sectors was at 2.24% per year. And when the new economy came into the picture, this growth rose to 3.19 % per year, which is more than 50% growth.

However, this is still a point of hot debate, with some critics arguing that there is no relation between profitability and investing in information communication technology. For instance, Castells considers the history of productivity and growth in developed market economies and discovers a downward trend of productivity growth. He began this observation from the period when the information technology revolution was just beginning to plant its seeds during the early 1970s. The economist reasons that this decline was most marked in all countries equally for services activities, which may have been thought to be the impact of information processing gadgets.

Castell's observation may be right to some extent, but there are a few things he seems to have forgotten. Think about, for instance, the USA and Japan's manufacturing productivity, which increased immensely between 1988 and 1989, and bought 3% and 4.1% annual increment, respectively. Here, there was a much rapid growth in productivity than there was in the 1990s, where the information economy had already established roots. In conclusion, Castells records that economic statistics do not capture the movements of the new economy effectively. He attributes this failure to the broad scope of transformation under the impact of information technology and related changes within organizations. It is true that there could be a diffusion from information tech, manufacturing, telecommunication, and similar services into the business service.

Information economy as the change in the methods of gaining profit

Individuals start businesses because they are looking to benefit from their ideas. Profits, in this case, come from various sources. Robert Reich looks at a profit from old economies as sourced from economies of scale. In other words, it originated from long runs of more or less similar products. Because of this, there were factories, assembly lines, as well as industries, from all processes, were controlled.

Today profits come from a whole new source within the inclusion of new economies. Profits are tied to the speed and efficiency of innovation, and the ability to attract customers and keep them as well. In the past, winners were mostly big corporations, whereas modern winners and small, highly flexible teams that come up with incredible ideas. It is only groups that use their wits to develop trustworthy branding for themselves and their brand that stay the longest on the market. This means that information economics does not care about the size of the company, but how they use available data and information to create proper business environments.

Competition is now fairer than before since the playing ground has been leveled for both big and smaller corporations. You can open a business today selling similar products or services as a more established firm, and within a short period, you will be competing at the same level, depending on your aggressiveness and quality of products. Competitors that win are those who are at the forefront when it comes to lowering prices and higher values. They use intermediaries of the trustworthy brand to set their standard high, attract customers, and retain them. Note, however, that winning is temporary and that you have not finished the race yet. Once you start winning in the new economy, you can never stop innovating or fall behind the competition. The intensity of competition and lack of innovative ideas is usually the reason many falls behind their targets.

The value of information

When working on an economic analysis project, one of the main points you will need to observe is the source and availability of information. Many scholars in different fields far from economics use information as an invaluable asset to the foundation of knowledge. And since knowledge empowers a society, it is not a surprise that information applied in economics is also an asset for economic growth and development.

Note that information economics is a wide subject that applies the availability of information in making decisions. In the new economy, as stated above, there is no profit, as a particular firm cannot use their exposure to information to create a perfectly competitive environment.

The first step of economic analysis is the observation that information has economic value. Setting your thought in this direction will help you make choices that produce the highest yields in expected payoffs, or expected utility. This idea works far much better than what they would obtain from the choices they make where information is absent.

Information and price mechanisms

How do firms and organizations come up with prices for their products and services? They look at the existing conditions within the markets. Even though a perfect competition is only theoretical, setting the price of your goods too high chases away potential buyers, based on what the competition is doing. On the other hand, the setting is too low to devalue your products. Human beings are considered rational decision-makers, and sometimes they just believe more expensive is equal to better quality.

The work of Friedrich Hayek inspires much of the literature the defines information economics, 'The Use of Knowledge in Society.' In this book, he has dedicated one chapter on the application of price mechanisms in allowing information decentralization to create and order in the effective use of resources. Originally, Friedrich's work is intended to discredit central planning agencies' importance while praising market systems. However, he proposed that price mechanisms communicate information concerning the scarcity of goods. His inspiration comes from the works of Abba Lerner, Leonid Hurwicz, and George Stigler, among many other economists, which led him to further develop the department of information within economic processes. It is not only market coordination that is impacted, but even transactions can also be executed within the organizations as well, thanks to information. For this to happen, there are certain requirements that must be met, which are the prime determinants of the true coordination mechanism.

Information asymmetry and information goods

Sometimes, parties in the interaction may have different information, whereby one is armed with more and better information than their partner. This is called information asymmetry. If the other party is also expected to have better information, it can influence a change in behavior. It is natural that the one with less will try to stand tall so that the other does not intimidate them. Such behavioral changes can lead to inefficiency. Michael Spence prosed the idea of signaling, which involves people signaling their type in information asymmetry, hence sending the information to the other side and resolving the issue. On the other hand, Joseph E. Stiglitz came up with theory or screening, in which case the one with little information can induce the other participant to reveal their information.

On information goods, transacting (buying and selling) information is very different from transacting other goods. There are three reasons why this true. One, that information is non-rivalrous (many people can consume the same information without prejudice), two, the exclusion is not a natural aspect of information goods, and threeEconomic Information, that information market does not reveal high levels of transparency.

Author: James Hamilton

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