What do your understand by information economy

 What do your understand by information economy? Give your appreciation in the relevance and value of information

Though economists often talk in terms that seem impenetrable, what they study is very simple and basic. The "economy" is how resources are distributed throughout society. Since the 1960s, the world has been described as an information economy, rather than an industrial or agricultural economy. Buying, selling, and using information are at the heart of economic activity for businesses and consumers, as well as for the governments that regulate them.

What do your understand by information economy? Give your appreciation in the relevance and value of information

Development of the Field

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In ancient hunter-gatherer or small-scale agricultural societies, most economic activity was governed by tradition. When a global economy first began to develop in the fifteenth and sixteenth centuries, however, the need to plan for activities that would be coordinated over vast distances and the need to account for the effects of weather and events in faraway places on domestic availability of food and goods led to the articulation of theories about how the economy works. Each subsequent change in the nature of the economy has similarly stimulated the development of new economic ideas, first with industrialization and then with "informatization."

The subfield of the economics of information emerged as several distinct strands of research and theory that dealt with very different aspects of information began to be considered together. Neoclassical economic theory, the economic ideas that dominated most of the decision making (whether of government or of corporations) during the twentieth century started from a set of five assumptions:  that everyone has access to the same information,  that everyone has perfect information about prices and goods in the marketplace,  that purchasing decisions are made solely for economic reasons,  that the histories and habits of consumers have no influence on individual buying decisions, and  that power and influence play no role in how the market works. Historical work that contributes to the way in which economists understand information dealt with matters as different from each other as optimization of flows through a communication system, decision theory, research and development, prices, organizations as economic entities, and risk.

What do your understand by information economy? Give your appreciation in the relevance and value of information

Over the course of the twentieth century, however, the growth in the importance of information goods and services to the economy forced reconsideration of many of these inherited economic ideas. In the 1930s, Ronald Coase pointed out that the very reason corporations form is to reduce the transaction cost (i.e., the cost of getting knowledge about prices for necessary things). One important implication of this insight, he noted, was that businesses should not be seen as solid and stable structures; rather, they should be seen as incompletely connected networks of information flows. By the 1960s, Fritz Machlup and Kenneth Boulding started identifying industries that fell within the "information sector" of the economy. In the 1970s, Uri Porat offered a framework for statistically analyzing trends in the information sector. This framework was taken up by the U.S. government and subsequently by other governments around the world, leading to the creation of the body of statistics related to the enormous growth in the percentage of the work force involved in "information work," the contributions of information industries to the national economy, and so on.

Subsequently, a great deal of work began to be done to investigate how neoclassical economic ideas applied to information creation, processing, flows, and use. A number of problems were identified. It is difficult to break information into units, so it is therefore difficult to quantify it. Information is not appropriable; while it can be owned, that ownership is rarely exclusive. Information is thus said to be "leaky" because when it is transferred it may go not only from seller to buyer but also to third parties who may be in the vicinity and acquire the information solely through, for example, overhearing it, viewing it from afar, or accessing it through web-based means. Information is heterogeneous in nature, so it often is valued in widely differing ways by different people.

What do your understand by information economy? Give your appreciation in the relevance and value of information

This is illustrated by the fact that "old" information is useless to corporate decision makers, but it is invaluable to historians. In most cases, value is put not on information itself but in its material packaging—the book, the classroom, or the television set. Economists use the term "commodities" to identify things that are bought and sold that are fixed in time and space, but informational goods and services are not necessarily fixed in time and space. Where, for example, would one locate the site of the purchase of information processing in a transaction that involves a buyer in one country, a seller in a second, and a computer in a third? Despite these problems, it has been necessary to come up with some way of understanding economic processes as they take place within an economy that is  clearly ever-more reliant on information technologies for the production, distribution, and use of all kinds of goods and services and  composed of an ever-larger proportion of informational goods and services.

What Is "The Information Economy"?

The earliest way of understanding the information economy was set forth in the 1960s. According to this product-based theory, an information economy operates just like any other economy except for the simple difference that there is a larger proportion of informational goods and services being bought and sold. This approach continues to underlie most governmental decision making, and it is the approach that is used to generate statistics to describe the growth of the information economy. This approach is useful as far as it goes, and it has the advantage of permitting decision makers to continue to work with the kinds of analytical tools that they have always used. However, people in the business world increasingly began to feel that this approach did not adequately capture what was going on in the contemporary economy—where value was being created and money was being made.

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IMPORTANT QUESTIONS:-

1) Give the salient features of economics as a discipline. 

2) Distinguish between information economics and economics of information.

3) State the characteristics of information. 

4) What are the basic contours of information economics

 

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