The economist Joseph Stiglitz won the Nobel Prize for Economics in 2001. Along with George Akerlof and Michael Spence, he worked out a theory of information asymmetry: a situation where both parties in a transaction have different levels of information. Could this theory have some relevance as an explanation of the current financial crisis?
In praise of …..Joseph Stiglitz Guardian (8/10/08)
Stiglitz lecture on financial crisis available online University of Manchester (13/10/08)
Questions
| 1. | Explain what is meant by information asymmetry. |
| 2. | Explain how information asymmetry can lead to markets working imperfectly. |
| 3. | Discuss the extent to which the theory of information asymmetry may be relevant as a partial determinant of the current financial crisis. |