American Public University
1. Consider the nature of the trade-off between richness and reach of information. How is the trade-off defined? Give a real world example to qualify for the maximum possible credit.
The trade-off between richness and reach of information means that reaching information at the different level of richness might cost differently. If someone would like to reach information, he needs to pay for this service, and the price depends on the richness of the information requested (Nayab, 2014).
Advanced communication and information technologies have decreased the cost of reaching rich information nowadays; however, it does not mean we do not have a trade-off between richness and reach of information. The Internet and other information and communication technologies provide us a significant amount of information, but high-quality filtered information is not something easy to get from them. Therefore, individuals still need to pay to reach rich and high-quality information. The information from the internet is quite rich but complex. Also, connecting different information about various topics requires a specialization. For instance, if you are looking for some information on the cost structure of a production, you might find many different resources; however, filtering them and making them a specific information to satisfy someone’s need might be quite difficult (Mahdavi, Mohebbi, & Cho, 2011).
A good example of the trade-off is the money and stock exchange markets. Making a simple search on the internet can provide us a tremendous amount of information about a stock paper or an exchange rate between two currencies; however, an investor would like to see well-ordered and well-processed information to be able to make his investment decisions correctly. Therefore, the professional investors prefer purchasing some information services to receive high-quality economic and market intelligence.
2. Consider how “Every business is an information business.” Why is this statement and an economic statement? How is this statement relevant to the concept of Information Asymmetry and Moral Hazard. Give a real world example in this context.
The Economic decision-making process is built on rationality. Being rational requires collecting and analyzing information. Therefore, every business requires making some economic decisions, and each economic decision depends on market information.
Reaching information and using information might be important challenges for individuals and they might fail to make the right decision, and even that might cause a failure in the market system. There are two main issues that economists discuss regarding these challenges: asymmetric information and moral hazard.
Asymmetric information means that some individuals can access to relatively more information regarding quantity and quality compared to the other people and that destroys the full information assumption I mentioned above. The asymmetric information provides an essential advantage for the persons who have access to more information (Auronen, 2017).
Moral hazard is the misuse of some advantages some individuals have. Regarding information, if there exists an asymmetric information situation, the people who have access to more information might abuse this position (Gürtler, 2014).
Stock exchange market is a good example of these challenges. If some investors can reach more information, they might have the advantage of making relatively higher profits in the stock exchange market by using their information advantage. Even they might have the power to create a manipulation. Therefore, asymmetric information and moral hazard occur in the stock exchange markets because some investors always have a relatively better position to reach high-quality information and they can make relatively better forecasts and relatively better investment decisions.
3. Research and present one contribution to the body of Information Economics knowledge from one of the Nobel Prize winners in Economics (Stigler, Mirrlees, Vickery, Akerloff, Spence, Stiglitz, Hurwicz, Maskin or Myerson).
Screening is a theory developed by Joseph E. Stiglitz. This is a very simple but important theoretical contribution of Stiglitz to Information Economics. There exists asymmetric information, and some individuals have more information than others. Therefore, some individuals are underinformed, and they are disadvantageous in the markets. However, the underinformed agents can force the overinformed individuals to reveal their information and preferences under some certain conditions (Stiglitz, 2013). For instance, some customers' time is relatively more valuable compared to some other customers; thus these customers who give more value to time relatively might like to reach these services relatively more quickly, and they might accept to pay a relatively higher price than the other customers. This situation reveals their preferences.
While some individuals are choosing a car, they reveal some of their preferences. For instance, some customers have more information about the used cars, or they can access to this information while some other customers cannot. Consider that overinformed customers are trying to purchase a vehicle from an underinformed individual and assume that there are other customers trying to purchase the same car. In this case, the overinformed customer would accept to pay a relatively higher wage because he knows that the car is worth it (Yoo, 2011).
4. Why is it efficient to limit the duration of patents and copyrights, whereas real property rights endure almost forever? Give an example.
The number of lands are naturally limited, and there is a certain limit on competition. Also, the competition for having land does not make any contribution to the humankind. On the other side, patents and copyrights protect some inventions and intellectual outputs (Duffy, 2005). These things can make an essential contribution to our lives. Therefore, having competition for these intellectual products and inventions is important for developing relatively better conditions for humankind. Therefore, keeping the protection of patents and copyrights infinitely might kill the competition, and we might not receive a contribution from inventions and intellectual products after a while. Protecting these rights for a particular time is understandable to give a favor to the individuals who create inventions and intellectual outputs. However, in the long-run, we have to protect the competition and synergy regarding inventions and intellectual outputs (O’Sullivan, 2008).
5.Why is individual driver safety records public information? Are they public goods? Why or why not? Give an example to complete your answer?
Public information is information collected, classified and maintained under a legal regulation and accessible by anybody. Individuals can hide their private information if it does not harm other people and they can develop their private information without getting any permission and any intervention while developing or producing public information is regulated by the legal authorities.
Driver safety records include some information about individuals’ driving skills and location information of drivers. To me, some information included in the safety records is private information. Individuals would like to keep their locations they visit as secret. On the other side, driving skills information and their reactions to the conditions on the road and in the vehicle are public information (Slabby, 2017) in my opinion because scientific studies for developing relatively better conditions for public and also monitoring some illegal actions those drivers can take are important (Clarke, 2017).
For instance, a famous person would like to make some visits without being disturbed by paparazzi journalists and his fans, and he would like to keep this information private. On the other side, even a person is famous; the legal authorities can monitor his driving to make sure he follows the traffic rules.
References
Auronen, L. (2017). Asymmetric Information: Theory and Applications. Helsinki University of Technology. Retrieved 26 January 2017, from https://pdfs.semanticscholar.org/cdc1/10d48cfa54659f3a09620d51240f09cf1acc.pdf
Clarke, V. (2017). RSA chief calls for public record of disqualified drivers. The Irish Times. Retrieved 26 January 2017, from http://www.irishtimes.com/news/ireland/irish-news/rsa-chief-calls-for-public-record-of-disqualified-drivers-1.2925318
Duffy, J. (2005). Intellectual Property as Natural Monopoly: Toward a General Theory of Partial Property Rights. University of Texas. Retrieved 26 January 2017, from https://law.utexas.edu/wp-content/uploads/sites/25/duffy_intellectual_property_natural_monopoly.pdf
Gürtler, O. (2014). Moral Hazard, Risk Aversion and Efficiency. Bulletin Of Economic Research, 66(S1), S104-S109. http://dx.doi.org/10.1111/boer.12021
Mahdavi, I., Mohebbi, S., & Cho, N. (2011). Electronic supply network coordination in intelligent and dynamic environments (1st ed., pp. 28-29). Hershey, PA: Business Science Reference.
Nayab, N. (2014). How Has Technology Changed Communication?. Brighthub Project Management. Retrieved 26 January 2017, from http://www.brighthubpm.com/methods-strategies/79052-exploring-how-technology-has-changed-communication/
O’Sullivan, M. (2008). Creative Commons and contemporary copyright: A fitting shoe or “a load of old cobblers”?. First Monday. Retrieved 26 January 2017, from http://firstmonday.org/article/view/2087/1919
Slabby, M. (2017). Will we know more about self-driving vehicle tests if the state starts collecting data?. The Incline. Retrieved 26 January 2017, from https://theincline.com/2017/01/16/will-we-know-more-about-self-driving-vehicle-tests-if-the-state-starts-collecting-data/
Stiglitz, J. (2013). The Price of Inequality. New Perspectives Quarterly, 30(1), 52-53. http://dx.doi.org/10.1111/npqu.11358
Yoo, J. (2011). Asymmetric Information or Asymmetric Reputation? A Theory on Why Foreigners Earn So Much in a Small Open Emerging Market*. Asia-Pacific Journal Of Financial Studies, 40(3), 377-402. http://dx.doi.org/10.1111/j.2041-6156.2011.01043.x
