Costly Information and Individual and Social Resource Allocation

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This project studies the role of information in individual decision making and in the structure of markets by which resources are reallocated socially. The underlying theme is that recognizing that knowledge is neither free nor infinitely costly has many implications for the means by which individuals reallocate their resources, including their stock of information, and for transactions among individuals by which both goods and knowledge are transferred. The role of information in individual decisions is to be studied as a basis for the still more fundamental issue of providing a general model for economic activity. The market as understood in standard economic theory merely approximates economic processes, and is valid only in limiting cases where certain information costs vanish. The outcome of this research will be above all conceptual rather than technical, although numerous analytic questions must be raised in the process. Also, it provides better understanding of the foundations of the theory of economic institutions including firms, markets, and market equilibrium.