LAGOS STATE UNIVERSITY

DEPARTMENT OF ECONOMICS
FACULTY OF SOCIAL SCIENCES
(M.SC)

NAME
OLUDARE FASOGBON

COURSE CODE:
ECO 811:

COURSE TITLE
ADVANCE MICROECONOMICS

QUESTION:
CRITICALLY ACCESS THE GOOD, BAD AND THE UGLY SIDE OF JOSEPH
STIGLITZ CONTRIBUTION TO THE DEVELOPMENT OF INFORMATION
OF ECONOMICS IN RELATION TO NIGERIA ECONOMY.

LECTURER-IN-CHARGE
DR. BAKARE
The economics of information has constituted a revolution in economics, upsetting
establishedeconomic models with different economist thought, including the presumption
of market efficiency, with profound implications for economic policy.
Information economics has already had a profound effect on how we thinkabout economic
policy and are likely to have an even greater influence in the nearest future. The world is of
course, more complicated more than our simple economic models would suggest. Many of
the major political-economic debates over the past two decades have centered around one
key issue: the efficiencyof the market economy, and the appropriate relationship between
the market and the government. The argument of Adam Smith[1776], thefounder of
modern economics, which free markets led to efficient outcomes,“as if by an invisible
hand”, has played a central role in these debates: it suggested that we could, by and large,
rely on markets without government intervention.Most importantly, as we emphasize in
economics study, the assumption of a perfect markets and efficient. And in those sectors
where information and its imperfections play a particularly important role, there is an even
greater presumption of the need for government policy.
Stiglitz picked up some elementary facts about the economy that lay strewn about like
jigsaw pieces, put them together, and proved why some prices were naturally sticky,
thereby creating market inefficiencies and thwarting the functioning of the invisible hand. In
Stiglitz’s words, the invisible hand “is invisible at least in part because it is not there.”
Information is a public goodindeed, more broadly, knowledge or information is a global
public good (Stiglitz (1999)) and markets on their own typically are not efficient in the
provision of such goods.

THE GOOD OF INFORMATION OF ECONOMICS IN RELATION TO NIGERIA ECONOMY

 The key point is the dynamism of information within the economy. How the
economy adapts any new information and disseminated, absorbed and used
throughout the economy. The Petroleum Products Pricing Regulatory Agency (PPRA)
which released the new monthly template on 12th March says petrol is expected to
sell at a lower retail price of N209.61 and at an upper retail price of N212.61. As soon
as the information broke, all marketers adjusted petrol pump price to reflect new
price until government intervention.
 The essential feature of a decentralized market economy is that differentpeople
know different things.The Knowledge and information is produced as a byproduct of
the production of goods; if this information leaks out to others, then the value of this
information won’t be fully internalized in the determination of the levels of
production (Stiglitz and Greenwald (2014)). Nigeria today alot of HMO’s know more
about people’s health than them, so people always asked for information to be
shared.
 Stiglitz has been critical of free markets), mainly because of the information
asymmetries that exist in many markets. He often called for government
 intervention to correct these market failures, but his arguments for these
interventions were always what might be called “possibility theorems.”
 Information economics provided the necessary basis to reconcile the macro and micro
policies.It explained, for instance, why there was credit and equity rationing; why this
led to risk averse behavior on the part of firms (Greenwald and Stiglitz (1990)); and
why wages might not adjust even when there was significant unemployment
(Shapiro and Stiglitz (1984)) and other variants of efficiency wage theory (Stiglitz,
1987c).These “financial frictions,” as they came to be called, gave rise to a financial
accelerator, whereby small shocks to the net worth of a firm could give rise to large
shifts in both the aggregate demand and supply curves. The effects of a shock could
persist and the restoration of balance sheets, and thus the recovery of the economy
to full employment could take a long time.
 That economy is inefficient, doesn’t mean that moving the economy closer to a
perfect model will improve welfare. Let us some Nigeria free trade agreement -
ECOWAS Trade Liberalization Scheme (ETLS). Nigeria recently short borders for
almost 16 months and slight improvement in the country’s rice production while all
other country was affected negatively by the closure. The Welfare of the consumers
in the border towns was very poor because no alternative means of survival.

THE BAD OF INFORMATION OF ECONOMICS IN RELATION TO NIGERIA ECONOMY

 One of the important insights of the economics of information is that in the absence
of good information, typically competition will be imperfect; and with imperfect
competition, there is the likelihood of firms exploiting market power. This is very
common scenario and practice in Nigeria. Some inside information had made huge
naira; from the round tripping that took place during COVID 19 lock down when FX
was very scarce. BDC was selling FX for as much as $1=N450 when official rate was
$1=N320.
 Information is very scarce. Nigerians want to know what extent the security issues
(herdsmen, bandits, boko haram etc) in the country is affecting the economy growth.
Many Employees want to know the performance of the company that pays wages.
 Information cost is inevitable; He showed how it is possible for government to
improve on markets but never explained the incentives that would lead government
officials to do so. Nigeria is implementing a N5 extra for every dollar FX from
diaspora in exchange at bank and some selected BDCs.
 There is an informational externality. The existence of this asymmetric information
affects the nature of the bidding for oil rights on the neighboring tract. For example,
it is natural that in the process of oil exploration, a company finds out information
that is relevant for the likelihood that there will be oil in a neighboring tract
especially case of Shell and Chevron in the Niger Delta. Those who are uniformed
about the situation will over bid and will be a loss at long run.
  Moreover, households and firms have incentives for creating information
imperfections they may gain from lack of transparency. Nigeria case of FX scarcity, so
many firms increase old stock prices using the new the FX pricing regime by the CBN.
Foreign used cars (tokunboh cars) bought last year before the new FX regime , are
sold at the new conversion rate.
 Balancing of the micro and macroeconomics policies: For instance, the market
equilibrium may be characterized by excessive foreign denominated indebtedness
(Jeanne and Korinek (2010)). More generally, Nigeria government may not take fully
into account the effects of their decisions on prices in the future; say if they were
forced to liquidate their assets. Each small borrower takes the price distribution as
given; but of course, if they all borrow more, then if there is a crisis, next period
prices of certain assets will fall as they all is forced to liquidate more of their assets.
 Feasible Pareto efficient distribution of income, wealth and effects cannot be undone
through (lump sum) redistributions—partly because the information required to
achieve those lump sum distributions is not available, and the only feasible
redistributive taxes are distortionary

THE UGLY OF INFORMATION OF ECONOMICS IN RELATION TO NIGERIA ECONOMY

A situation in which different economy agents possess different information is said to be

one of asymmetric information. The strategic opportunities that arise in presence of
asymmetric information typically lead to efficient market outcomes, a market failure. Under
asymmetric information, the first theorem of welfare no longer holds.