Information and Incentive Economics -- Contemporary Economics Series

Author: Chen Zhao (Compiler)
Publisher:
Publish Date: 2005-12-01
Features: The title of this book is Information and Incentive Economics. When it comes to "information economics," there are actually two different meanings: one refers only to "asymmetric information economics," while the other includes early research based on incomplete information assumptions as well. [2] The content of this book primarily focuses on "asymmetric information economics," but in Chapter 2, "An Overview of Information Economics," and in the last chapter, "Information and Transition," we will also touch upon the broader meaning of the term. Asymmetric information economics, now a mainstream part of economics, is the main subject of this book and is sometimes referred to as "principal-agent theory" or "incentive theory." A narrower definition of incentive theory is the personnel management economics mentioned earlier, which specifically studies internal incentive issues in enterprises and has a stronger applied flavor. The title Information and Incentive Economics was chosen not only to emphasize the general concept of "incentives" but also to highlight the applied value of information economics in this regard. The book consists of nine chapters. To help readers understand the theoretical status, disciplinary development, and fundamental starting points of information economics, Chapter 2 focuses on introducing the theoretical origins, development history, basic classification of information economics problems, and important application areas. With this foundation, starting from Chapter 3, we use "adverse selection" as an example to illustrate how the existence of asymmetric information can severely affect market efficiency, leading to market failure. This chapter primarily raises the issue, and we will address the solution in Chapter 4, which introduces two important mechanisms in reality that can mitigate the adverse effects of adverse selection on market efficiency: "signaling" and "information screening." Chapter 5 is dedicated to analyzing another asymmetric information problem arising from "hidden actions," namely "moral hazard." Chapter 6 examines " unverifiability," which is a different scenario from adverse selection or moral hazard. Chapter 7 is on "mechanism design," centered around the "revelation principle," which provides a method for finding the optimal mechanism. We will also revisit the "information screening" mechanism from Chapter 4 from the perspective of mechanism design. Chapter 8 discusses the application of information economics in designing internal incentive mechanisms in enterprises, which is also the core content of current personnel management economics. In the last chapter, we analyze economic transition using incomplete information, and we will find that information problems are key to understanding the causes and process of the transition. Here, a brief explanation of the above content is provided. As we will see in the last part of Chapter 2 of this book, information economics has far too many application areas, intersecting or integrating with many branches of economics. Therefore, as a textbook introducing the basic content of this discipline, it is impossible for this book to cover all these applications. For this reason, the book adopts the following approach: for basic theories, [3] we introduce them in detail chapter by chapter, while their applications are included in the applications, examples, or further discussions within each chapter. The other part, which the author personally believes is particularly important for China, is divided into two separate chapters: Chapter 8 on the design of internal incentive mechanisms in enterprises, and Chapter 9 on transition issues. To cater to the target readership, the content of this book comprehensively covers the basic aspects of information economics, making it easier for beginners to quickly enter the field and master the fundamental knowledge. However, for more advanced topics, such as incentive issues in dynamic settings or the possibility of collusion between agents, the book does not provide detailed discussions. Interested readers will need to refer to advanced textbooks in this field to meet their requirements.