Introduction

The economics of information and of incentives has been one of the most active areas of research in economic theory over the past fifteen years. The origin of this work can be traced to the writings of Marschak in the 1920s and, beyond that, to von Hayek and other European authors. During the development of this theory, the nature of the problems studied has steadily evolved. The kinds of informational difficulties in complex organizations that captured the attention of early writers were actually far different from the questions to which modern economic theory has provided interesting answers.

A brief digression on the nature of this evolution will help to define our interests more clearly. In the earliest papers, the issue was the design and evaluation of communication processes. The economy was depicted as continually changing. A good system of communication was one that could quickly and accurately disseminate information about its current state. Writers such as von Hayek (1945) wanted to evaluate the price system in this informational role. Emphasis was primarily on the continued flow of new information, and on the transitory character of the state of the economy.