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Transcript of Stiglitz
2. Scholarly achievements
3. Theoretical foundations
4. Information asymmetry
5. Role as policy advisor and public intellectual
6. "Globalization and its Discontents"
7. "The Price of Inequality"
8. Publications Overview Born in Gary, Indiana
Studied at Amherst College
Graduate studies at MIT
PhD thesis: "Studies in the Theory of Economic Growth and Distribution"
Degree awarded in 1967 at age 24
Currently holds 42(!) honorary degrees
Became full professor of economics at Yale in 1970 at age 27
Stints at Stanford, Oxford, Princeton policy advisor
Chairman of President Bill Clinton's Council of Economic Advisors
Chief economist at the World Bank
Recipient of John Bates Clark Medal (the most outstanding economist under 40)
Nobel Prize in Economics (2001) together with George Akerlof and Michael Spence for their analysis of markets with asymmetric information The neo-classical Paradigm competitive markets
supply demand determines income distribution
(as well as prices and output)
Utility maximization of economic actors
Rational choice theory
Equilibrium (price at which supply equals demand)
Institutions don't matter
Distribution of wealth doesn't matter ? Information asymmetry = in economics it is the study of decisions in transactions where one party has better or more information than the other neo-classical economics assumes perfect information Information asymmetry creates imbalance of power market failure people buying insurance know more than the insurance company
“sort” customers by risk category --> "screening"
offering a range of insurance products and letting the customers select.
for example, low-premium, high-deductible health insurance policy attractive to healthy customers and unattractive to unhealthy customers.
“separating” equilibrium —> a market in which people’s risk category determined the kind of insurance they bought The insurance market Globalization and its Discontents Stiglitz' most influential book, published in 2002
raw material price increase due to Asian demand
flawed IMF and World Bank policies
too much concentration on certain issues,
promotion of democracy The Price of Inequality:
How Today's Divided Society Endangers Our Future
(2012) when individuals have access to privileged knowledge --> free markets have bad outcomes for wider society Stiglitz studied other information asymmetries:
Credit markets --> lenders charge higher interest rates to higher-risk borrowers
Stiglitz’s work with Carl Shapiro on “efficiency wages” --> explains unemployment
Stiglitz critical of free markets because of information asymmetries
a free and competitive market is highly beneficial to society at large, but it needs government regulation and oversight to remain functional
Stiglitz called for government intervention to correct market failures
He showed how it is possible for government to improve on markets --> Firestone tyres company Some of his famous and most recent books include:
“Freefall: America, Free Markets, and the Sinking of the World Economy” (2010)
“The Three Trillion Dollar War: The True Cost of the Iraq Conflict” (2008)
“Stability with Growth: Macroeconomics, Liberalization and Development” (2006)
“Making Globalization Work” (2006)
“Fair Trade for All” (2005)
“New Paradigm for Monetary Economics” (2004)
The Roaring Nineties: A New History of the World's Most Prosperous Decade” (2003)
“Globalization and Its Discontents” (2002) Influence on the field his research established him as one of the giants of the field
generations of graduate students carried on his ideas
huge influence on Paul Krugman, Jason Furman and several other Nobel-prize winning economists
"Economics for an Imperfect World" --> Essays in Honor of Joseph E. Stiglitz
One of the founders of modern development economics
--> asymmetric information and economic incentives have explanatory value for analysis of developing economies
It is not uncontrollable technological and social change that has produced a two-tier society, but the exercise of political power by moneyed interests over legislative and regulatory processes. “While there may be underlying economic forces at play,” he writes, “politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest.” Conservative advocates of pure free markets fail to acknowledge how concentrated economic power converts into political power.