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Another concept which the author deals
with in some detail is that of the distortions caused by
assymetric information, where one party to a transaction has
better information than the other. The theory earned George
Akerlof, the man who developed it, the Nobel Prize in
Economics. The pernicious effects of asymmetric information
are visible in the imperfections in markets for products and
services which range from used cars to health insurance.
Hartford has prescriptions for the maladies that affect
health services, and other markets where inside information
has a deleterious influence on efficiency.
The book also has an interesting chapter on game theory and
its applications, with examples of electromagnetic spectrum
auctions where the theory was applied – resulting, in one
case, in abject failure, and in resounding success in the
other. |
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The book ends with three chapters on globalization. On why countries remain
poor, the author writes of his experience in Cameroon, to highlight the
important role played by viable and credible institutions in bringing about
economic growth. Cameroon and other similar countries lack such
institutions, and also suffer from the organized banditry of their
government officials and politicians, who steal with impunity from the
citizens and the foreigners alike. This banditry stifles entrepreneurship
among the citizens of these countries, by making organized economic activity
almost impossible to carry out, and siphoning off the rewards of any such
activity that actually occurs.
The final chapter, on how China grew rich, is more upbeat. The author
recounts the economic miracle that transformed a country whose economy was
hobbled by Mao’s foolhardy socialist policies, into the world’s
manufacturing powerhouse. Such a transformation is possible in other poor
countries too, the author clearly believes, given the right circumstances
If there is one problem with the book, it could be that it covers only the
basics. But this is a minor quibble, which can come only from other
economists or people with more than a passing familiarity with economics.
For the common man, who is blissfully ignorant of the theories of this
dismal science, this is a refreshingly jargon-free book that describes many
important issues, without itself sounding self-important. |
