I’ll be giving a presentation with the above title at the University of Canberra tomorrow – Wednesday 27th of Sept in Room B34, Building 6 University of Canberra at 12:30 pm.
This is a repeat of a seminar I did at the ANU last year, but if you missed it and the title or abstract piques your interest, it would be good to see you there.
We have long known and for commonsensical reasons that good information is critical to economic efficiency. Friedrich Hayek argued this within the ‘Austrian tradition’ of economics in prosecuting his case in the ‘socialist calculation debates’ of the 1930s. ‘Asymmetric information’ arrived as a substantial issue within the neoclassical tradition around thirty five years later with the work of theorists such as Kenneth Arrow, George Stigler, George Akerlof and Joseph Stiglitz.
Yet remarkably little attention has been given to the question of how to improve information flows. Hayek was interested in information within a debate on the relative merits of markets and central planning. Arguing for the former, he paid little attention to the shortcomings of information flows within markets. Within the economic mainstream, the market failures in information illustrated by Akelof and Stiglitz are frequently cited as a justification for interventions to mandate disclosure (for instance in consumer and investor markets). However such discussion rarely goes further and investigates the efficacy of alternative strategies.
- information is often suppressed as commercial in confidence;
- reputation is a principle means by which a market economy deals with ignorance about complex matters; and
- regulation should focus as far as practicable on outcomes rather than inputs,
this paper argues for a new approach aimed at improving the rigour with which reputations are made.
The case for going beyond what we do now is strongest where asymmetric information is most rife as it is for instance in the provision of many professional services from medical services through to real estate agency and in the market for job satisfaction.
Right now most large firms regularly do survey work to gauge the satisfaction of their customers and their employees and identify opportunities to improve their performance. Such surveys could be standardised and the results published in a form which allowed ready comparison between firms.
Where outcomes of service provision can be objectively measured for instance the price achieved for houses, or the success rate of medical procedures a method of tendering is proposed by which service providers could tender for business by making predictions of the outcomes they could achieve, corrected for any systematic optimism or pessimism of past predictions. In addition to generating unbiased prognoses, the method could alleviate various perverse incentives generated by other attempts to measure the performance of service providers.