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Economics Famous Economist Joseph Eugene Stilgiltz

By: Ricky Chan


Joseph Eugene Stilgiltz is an American economist and professor ho currently
teachers at Colum!ia "ni#ersity$ Joseph E Stilgiltz as !orn in %
th
Fe!ruary& '%()*
currently aged +, is a contemporary economist ho has recei#ed the -o!le .rize
/011'2 and the John Bates 3edal /'%4%2$ 5is reputation has !een further endorsed
!y !eing one of the orld6s most fre7uently cited economists$
Joseph Stilgiltz as !orn in 8ary& 9ndiana& '%()& here he !egan his studies and as
the president of the student go#ernment$ :uring Joseph6s time in 8ary& Joseph
de#eloped many economic pro!lems hich stimulated his later contri!ution to
economics as 7uoted from the man himself ;Certainly& the po#erty& the
discrimination& the episodic unemployment could not !ut strike an in7uiring
youngster: hy did these e<ist& and hat could e do a!out them$= Joseph6s
mother6s family as -e :eal :emocrats and orshipped the F:R& his uncle as
non>la!or despite !eing a layer and his father as a Je?ersonian :emocrat& a
small !usinessman ho !elie#ed in self>employment and self>reliance$ From '%+1 to
'%+)& Joseph studied at Amherst College& a place hich !ecame his ;most formati#e
e<perience=$ :espite studying many courses& none as more interesting to him
than Economics$ Joseph Stilgiltz then mo#ed to the 39@ to continue his studies
here he !ecame a professional economist& here he as taught !y ( -o!el .rize
inning professors$ After the 39@& Joseph Stilgiltz researched at the "ni#ersity of
Chicago under the guidance of 5irofumi "zaa ho had recei#ed a -SF grant$ After
his education& Joseph Stilgiltz held many academic positions in the "ni#ersity of
Cam!ridge& Aale& Stanford& :uke& B<ford& and .rinceton$ Currently& Joseph Stilgiltz is
a .rofessor at the "ni#ersity of Colum!ia& employed in the :epartment of
Economics& Business School& School of 9nternational and .u!lic A?airs and is the
editor of @he Economists Coice$ 5e has also !een B!ama6s ad#isor& !efore sharply
criticizing B!ama Administration6s Dnancial>industry rescue plan& descri!ing its
contri!utors Eeither in the pocket of the !anks or they6re incompetent$=
Joseph Stilgiltz has made to signiDcant contri!utions toards economic thought
outside of !eing a professor and a political ad#isor$ 5is most signiDcant contri!ution
toards economic thought as his research on screening& techni7ue used !y an
economic agent in order to e<tract otherise pri#ate information from another&
inside the economic theory of information asymmetry$ 9nformation asymmetry
occurs during a transaction in hich one party possesses more information a!out
the other creating an im!alance in poer and an unfair disad#antage to one party$
As a result& Joseph Stilgiltz pioneered a ne method to !alance out this information
asymmetry& knon as screening$ @he concept of screening in#ol#es the under>
informed party inducing the other party to re#eal their information unintentionally$
@o e<amples in hich screening is used e<tensi#ely are life insurance and !anking$
:uring the selling of life insurance& di?erent people can create a false impression of
the risk le#els& putting the insurance company at a disad#antage$ 5oe#er& ith the
de#elopment of screening& insurance companies no pro#ide the details of di?erent
insurance policies$ @he loer risk customers ill ha#e loer premium !ut less
Economics Famous Economist Joseph Eugene Stilgiltz
By: Ricky Chan
protection hilst the higher risk customers ill ha#e higher premium !ut most
protection$ @hrough this process& the company can sie#e through the customers !y
inducing them to choose a package hich ill re#eal the general !ackground and
ena!le the insurance company to de#elop an understanding of the customer6s risk
le#els$ Similarly& the !ank uses a similar method to measure ho much the
!orroer and can return ensuring the !ank ill not !e lending money to a !ankrupt
person$ @he process of screening has !een taken a step further through inter#ies&
hich allos the mem!ers of the companies to in#estigate and meet the customer&
alloing the !usiness to de#elop a !etter understanding of their consumers$
Joseph Stilgiltz6s other contri!ution is the idea of eFciency ages and its e?ects on
unemployment$ Stilgiltz6s !asic idea as that companies are illing to pay a higher
age in order to keep their orkers at the company$ 5oe#er& through his studies&
Joseph realized that if e#ery!ody6s age as set so that there is an assumed no
unemployment& a orker ill !e less producti#e since if he is Dred ill then mo#e on
to other companies$ As a result& the Drms ill raise their age !ut employ feer
people& in order to keep high producti#ity$ @his loered num!er of Go!s ill result in
an increase in competition and people ill !e more attracted to ork ith higher
age lea#ing the loer>aged Go!s loer$ @his ill result in unemployment in the
long>term$
Joseph Stilgiltz has pro#en himself to !e an inno#ator and an acti#e economist ho
is illing to accept challenges and is illing to continue research in order to make
the economy !etter$ 5is main contri!ution to economics& screening on information
asymmetry& has !een e<tremely inHuential o#er the economy$ 5is methods of
screening ha#e !een used signiDcantly across many nations& sectors and economies
and ha#e !ecome an e#eryday prospect$ @hrough his studies& many companies
ha#e !een !etter prepared hen assessing their consumers& alloing these
!usinesses to ensure they are not a?ected !y this unfair disad#antage of
knoledge$ @his has alloed the market to !ecome more free and fair ensuring
companies are not a?ected !y information asymmetry$ 5oe#er& Joseph Stilgiltz6s
contri!ution toards the economy may sloly dindle in the future unless his
theory is slightly altered to cater for the ne technology$ "nder the technological
!oom& consumers not purchase online and ha#e e<ploited a loophole in Joseph
Stilgiltz6s theory of screening& rendering it less poerful and tipping the scales of
!ack toards the consumers$