Institutional Economics and Social Costs in the Age of Information Technology

The information asymmetries arising as a result of the recent developments in information technologies have grown consistently over time. The dominant position of business enterprises such as Google and Facebook has led to a duopoly in the provision of online information, as reported by the Financial Times (Garrahan, 2017; on the monopolistic element inherent to the information industry see Schneier (2014) and Starr (2019)). The combination of a duopolistic information supply with the cognitive and time constraints exhibited by consumers composing the demand side of the economic system results in a decision framework where preferences and decisions themselves can be extrapolated and modified by online suppliers (Kosinski et al., 2013).

While the main tendency among current economists consists of praising the innovations introduced through artificial intelligence and machine learning in the information technology sector as the results of a convergence process towards perfect information (Varian et al., 2004; Tabarrok and Cowen, 2015; Milgrom and Tadelis 2018), the reality described by other disciplines diverges considerably from such an idyllic view (Epstein and Robertson, 2015). A vast amount of evidence provided by, among others, psychologists (Pariser, 2012; Izuma and Adolphs, 2013) and computer scientists (Lanier, 2014; Schneier, 2014; Auerbach, 2015), emphasizes the ability of information technology companies to select strategically the information provided to market participants so as to modify and redirect the preferences of decision makers.

Markets cannot therefore be understood and studied as abstract self-correcting entities driven by supply and demand interactions, since information suppliers are endowed with sufficient power to determine to a large extent the results from these very own interactions (Schneier, 2014; Mirowski and Nik-Khah, 2017). The consequences from these asymmetries regarding misinformation and doubt manufacture have spread to a plethora of scientific domains (Michaels, 2008; Mirowski, 2011), extending well beyond the economic discipline into the open systems view that incorporates the short and long-run consequences of business decisions for human health and environmental sustainability (Kapp, 1963).

Institutional economists have concerned themselves with these developments since the early foundational stages of the critical theory of social costs (Veblen, 1904; Kapp, 1950) and extended its main findings into the markets driven by current business-biased information technology innovations (Frigato and Santos-Arteaga, 2019). Given the ingenuity exhibited by institutional economists to incorporate the findings from different academic disciplines into their interdisciplinary analysis of the pecuniary institutions of capitalism (business enterprises and market interactions), the main objective of the current volume is to foster the development of such implications further.

We welcome original manuscripts dealing with the information asymmetries inherent to the behavior and evolution of current market structures and their economic, social, political, and ecological implications.

References

Auerbach, D. (2015), Buyer still beware. Libertarians think the “perfect information” of the Internet will make regulation obsolete. They are so, so wrong, Slate, April 15, 2015. Available from www.slate.com/articles/technology/bitwise/2015/04/end_of_asymmetric_information_why_tyler_cowen_and_alex_tabarrok_are_wrong.html?via=gdpr-consent

Epstein, R., Robertson, R.E. (2015), The search engine manipulation effect (SEME) and its possible impact on the outcomes of elections, Proceedings of the National Academy of Sciences, 112, E4512-E4521.

Frigato, P., Santos-Arteaga, F.J. (2019), The Dark Places of Business Enterprise. Reinstating Social Costs in Institutional Economics, London and New York: Routledge.

Garrahan, M. (2017), Google and Facebook dominance forecast to rise, Financial Times, December 4, 2017. Available from https://www.ft.com/content/cf362186-d840-11e7-a039-c64b1c09b482

Izuma K., Adolphs, R. (2013), Social manipulation of preference in the human brain, Neuron, 78(3), 563-573.

Kapp, K.W. (1963), Social Costs of Business Enterprise, Bombay, London, New York: Asia Publishing House.

Kapp, K.W. (1950), The Social Costs of Private Enterprise, Cambridge Mass.: Harvard University Press.

Kosinski, M., Stillwell, D., Graepel, T. (2013), Private traits and attributes are predictable from digital records of human behaviour, Proceedings of the National Academy of Sciences, 110(15), 5802-5805.

Lanier, J. (2014), Who Owns the Future? New York: Simon & Schuster.

Michaels, D. (2008), Doubt is Their Product: How Industry's Assault on Science Threatens your Health, New York: Oxford University Press.

Milgrom P., Tadelis S. (2018), How artificial intelligence and machine learning can impact market design, Cambridge Mass.: NBER Working Paper Series #24282.

Mirowski, P. (2011), Science-Mart: Privatizing Americans Science, Cambridge: Harvard University Press.

Mirowski, P., Nik-Khah, E. (2017), The Knowledge We Have Lost in Information: The History of Information in Modern Economics, New York: Oxford University Press.

Pariser, E. (2012), The Filter Bubble: What The Internet Is Hiding From You, London: Penguin.

Schneier, B. (2014), Data and Goliath: The Hidden Battles to Collect your Data and Control Your World, New York: W. W. Norton & Company.

Starr, P. (2019), How neoliberal policies shaped the internet – and what to do about it now, American Prospect, October 2, 2019. Available from https://prospect.org/power/how-neoliberal-policy-shaped-internet-surveillance-monopoly/

Tabarrok, A., Cowen, T. (2015), The end of asymmetric information, Cato Unbound, April 6, 2015. Available from www.cato-unbound.org/2015/04/06/alex-tabarrok-tyler-cowen/end-asymmetric-information

Varian H.R., Farrel, J., Shapiro, C. (2004), The Economics of Information Technology. An Introduction, Cambridge: Cambridge University Press.

Veblen, T. (1904), The Theory of Business Enterprise, New York: Charles Scribner’s Sons.

Dr. Francisco Javier Santos Arteaga
Dr. Pietro Frigato
Dr. Debora Di Caprio
Guest Editors

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• institutional economics
• social costs
• information technology
• information asymmetries
• preference manipulation
• perfect information
• doubt manufacture
• open systems view
• environmental sustainability