- Person
- Joseph Stiglitz
- Lived
- b. 1943
- Field
- Economics
- From
- American
The story
Joseph Stiglitz was born in 1943 in Gary, Indiana, a steel town where, he later wrote, the poverty, discrimination and episodic unemployment could not fail to strike an inquiring youngster. He wanted to know why these things existed and what could be done about them. After Amherst College he earned his PhD at MIT in 1967, and he went on to hold professorships at Yale, Princeton, Oxford and Stanford.
Economics had long assumed that buyers and sellers are equally well informed. In the 1970s Stiglitz, George Akerlof and Michael Spence laid the foundation for a general theory of markets with asymmetric information, where one side knows much more than the other. Borrowers know more than lenders about their chances of repaying, managers know more than shareholders about a firm's profits, and customers know more than insurers about their risks. Akerlof showed how such gaps can drive good products out of a market, and Spence showed how the better informed can signal what they know.
Stiglitz clarified the opposite adjustment: how poorly informed parties extract information from the better informed. In a famous 1976 paper with Michael Rothschild on competitive insurance markets, he showed how insurers can offer a menu of contracts in which higher deductibles come with much lower premiums, so that customers sort themselves into risk classes. This technique, known as screening, is his best-known contribution.
In 2001 the three economists shared the Nobel Memorial Prize in Economic Sciences. The Royal Swedish Academy of Sciences said their contributions formed the core of modern information economics, with applications ranging from traditional agricultural markets to modern financial markets, and that Stiglitz had shown asymmetric information to be key to understanding many market phenomena, including unemployment and credit rationing. That year he joined Columbia University as professor of economics, business and international affairs.
The ideas behind the prize have shaped policy as well as theory. While serving in the Clinton administration, Stiglitz saw concepts he had helped develop, such as adverse selection and moral hazard, become part of the everyday language of debates on health care. Information economics helps explain why markets for credit, insurance and jobs can fail, and why well-designed rules can protect borrowers, patients and workers.
Why it matters
Information economics helps explain why markets for credit, insurance and jobs can fail, guiding policies that protect borrowers, patients and workers.
About Joseph Stiglitz
Nobel economist from Gary, Indiana, who showed how imperfect information distorts markets, led the World Bank’s research and became a leading critic of inequality.
More about Joseph Stiglitz
- Joseph Stiglitz named the Henry George theoremJoseph Stiglitz showed that the ideal supply of local public goods can be funded entirely by taxing the land rents those goods create, calling it the Henry George theorem.
- Joseph Stiglitz explained why unemployment persistsIn 1984 Carl Shapiro and Joseph Stiglitz published a model showing how employers’ difficulty monitoring workers can keep wages high and leave some people unemployed.
- Joseph Stiglitz marched for civil rights in 1963As student council president at Amherst, Joseph Stiglitz joined the March on Washington and organised an exchange with a small African-American college in the South.
- Joseph Stiglitz led a commission on measuring beyond GDPIn 2008 Joseph Stiglitz chaired the Commission on the Measurement of Economic Performance and Social Progress, whose 2009 report argued that GDP alone does not measure well-being.
- Joseph Stiglitz founded a think tank on developmentIn 2000 Joseph Stiglitz founded the Initiative for Policy Dialogue at Columbia University, and since 2005 he has chaired Manchester’s Brooks World Poverty Institute.
Sources
- The Prize in Economic Sciences 2001: press release NobelPrize.org
- Joseph E. Stiglitz: Biographical NobelPrize.org
- Joseph Stiglitz Jewish Virtual Library
Another act of tikkun olam. This is part of tikkun olam, the Jewish idea of repairing the world, and every one of us can add to it.