, Volume 23, Issue 2, pp 119–128 | Cite as

The economics of information: An exposition

  • Kenneth J. Arrow


The study of information as a choice variable has been given much more weight by disciplines other than economics. This paper tries to lay out the essential economic characteristics of information as an economic commodity. It discusses the reasons why usual market analysis fails and some of the problems that information creates for industrial structure. It is the treatment of information as a variable and its implications for economic behavior that needs further analysis. This is done by giving a formal statement of the role of information in economic decisions based on the use of information and applying it to specific forms of payoff and cost functions. That in many cases information is about rates leads to the conclusion that the value of new technical information is related to the scale of operation. Once information has been obtained its transmission is easy. Therefore it is difficult to make information into property and the incentives to create it will be lacking. In general the analysis shows that the special properties of information as an economic good have strong implications for the very role and meaning of the firm.

Key Words

Asymmetric information economic decisions transmission of information theory of the firm technological innovation returns to scale 

JEL codes

D80 L20 


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  1. Arrow, Kenneth J. (1972) ‘The Value of and Demand for Information’, in C. B. McGuire and R. Radner (eds.),Decision and Organization, New York: North-Holland, Chapter 6.Google Scholar
  2. Arrow, Kenneth J. (1987) ‘The Demand for Information and the Distribution of Income’,Probability in the Engineering and Information Sciences 1, 3–13.Google Scholar
  3. Arrow, Kenneth J. (1994) ‘Information and the Organization of Industry’,Rivista internazionale di scienze sociali 52, 111–124.Google Scholar
  4. Yitzakhi, S. (1987) ‘The Relation between Return and Income’,Quarterly Journal of Economics 102, 77–95.Google Scholar

Copyright information

© Kluwer Academic Publishers 1996

Authors and Affiliations

  • Kenneth J. Arrow
    • 1
  1. 1.Department of EconomicsStanford UniversityUSA

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