Economics of Information and the Internet

The Economics of Information and the Internet is a specialized field of microeconomics that examines how information, or the lack thereof, impacts economic decisions and market outcomes. Building on foundational concepts like asymmetric information, adverse selection, and moral hazard, this area explores how the digital revolution has fundamentally altered the costs of producing, distributing, and accessing information. It analyzes modern phenomena such as network effects, the dynamics of two-sided markets and platform competition, the economics of search, and the valuation of personal data. Ultimately, this field provides critical insights into the business strategies of digital firms, the pricing of digital goods, and pressing policy debates surrounding privacy, intellectual property, and net neutrality.

1. Foundations of Information Economics
   1. Information as an Economic Good
      1. Defining Information as a Good
      2. Characteristics of Information
         1. Non-rivalry
         2. Non-excludability
         3. Low Marginal Cost of Reproduction
         4. High Fixed Costs of Production
         5. Experience Good Properties
         6. Network Good Properties
         7. Perishability and Obsolescence
         8. Quality Uncertainty
      3. Public vs. Private Goods Framework
         1. Pure Public Goods
         2. Pure Private Goods
         3. Club Goods
         4. Common Pool Resources
         5. Information Goods Classification
      4. Value of Information
         1. Information and Decision-Making
         2. Expected Value of Information
         3. Diminishing Returns to Information
         4. Information Complementarity
         5. Information Substitutability
   2. Asymmetric Information
      1. Definition and Core Concepts
         1. Information Asymmetry Types
         2. Timing of Information Revelation
         3. Welfare Effects of Asymmetric Information
      2. Pre-contractual Asymmetry
         1. Hidden Characteristics
         2. Adverse Selection
            1. Akerlof's Market for Lemons
            2. Unraveling Effect
            3. Market Breakdown Conditions
         3. Applications in Insurance Markets
            1. Health Insurance
            2. Auto Insurance
            3. Life Insurance
            4. Disability Insurance
         4. Applications in Labor Markets
            1. Hiring and Resume Screening
            2. Credential Inflation
            3. Statistical Discrimination
         5. Applications in Financial Markets
            1. Credit Markets
            2. Securities Markets
            3. Banking and Lending
         6. Applications in Product Markets
            1. Used Goods Markets
            2. Quality Uncertainty
      3. Post-contractual Asymmetry
         1. Hidden Actions
         2. Moral Hazard
            1. Ex-ante Moral Hazard
            2. Ex-post Moral Hazard
         3. Principal-Agent Problem
            1. Definition and Framework
            2. Agency Costs
            3. Incentive Compatibility
            4. Participation Constraints
         4. Applications in Insurance
            1. Risky Behavior After Coverage
            2. Deductibles and Co-payments
            3. Policy Design
         5. Applications in Employment
            1. Employee Shirking
            2. Performance-Based Pay
            3. Monitoring Costs
            4. Team Production Problems
         6. Applications in Financial Markets
            1. Bank Risk-Taking
            2. Investment Decisions
            3. Corporate Governance
   3. Mechanisms to Mitigate Information Asymmetry
      1. Signaling
         1. Definition and Purpose
         2. Signaling Equilibrium
         3. Separating vs. Pooling Equilibria
         4. Spence's Job Market Signaling Model
         5. Education as a Signal
            1. Human Capital vs. Signaling
            2. Signaling Value of Degrees
         6. Warranties and Guarantees
            1. Signal of Product Quality
            2. Optimal Warranty Design
         7. Advertising as Quality Signal
            1. Informative vs. Persuasive Advertising
            2. Advertising Intensity and Quality
         8. Brand Reputation as Signal
            1. Brand Investment
            2. Reputation Capital
         9. Financial Signaling
            1. Dividend Policy
            2. Capital Structure
      2. Screening
         1. Definition and Purpose
         2. Self-Selection Mechanisms
            1. Menu Design
            2. Incentive Compatibility
         3. Insurance Applications
            1. Deductibles and Premiums
            2. Policy Menu Design
         4. Employment Applications
            1. Interviewing and Testing
            2. Application Forms
            3. Probationary Periods
         5. Financial Applications
            1. Credit Scoring
            2. Collateral Requirements
      3. Reputation and Trust
         1. Building Reputational Capital
         2. Reputation Mechanisms
            1. Repeat Interactions
            2. Word-of-Mouth
         3. Third-Party Certification
            1. Certification Bodies
            2. Quality Standards
         4. Online Reputation Systems
            1. Rating and Review Systems
            2. Feedback Mechanisms
            3. Reputation Aggregation
         5. Trust and Social Capital
            1. Trust Building Mechanisms
            2. Social Networks and Trust