Information and the Change in the Paradigm in Economics (Les Prix Nobels)

Information economics represents a fundamental change in the prevailing paradigm within economics. The argument of Adam Smith (1776) that free markets lead to efficient outcomes has played a central role in these debates: It suggested that we could, by and large, rely on markets without government intervention (or, at most, with a limited role for the government). The set of ideas that I will present here undermined Adam Smith's theory and the view of the role of government that rested on it. The ideas and models I will discuss here have proved useful not only in addressing broad philosophical questions, such as the appropriate role of the state, but also in analyzing concrete policy issues.