Editing Joseph Stiglitz (section)

===Information asymmetry===
Stiglitz's most famous research was on [[Screening (economics)|screening]], a technique used by one economic agent to extract otherwise private information from another. It was for this contribution to the theory of [[information asymmetry]] that he shared the Nobel Memorial Prize in Economics<ref name=NOBEL1 /> with [[George A. Akerlof]] and [[A. Michael Spence]] in 2001 "for laying the foundations for [[information asymmetry|the theory of markets with asymmetric information]]".

Much of Stiglitz's work on [[information economics]] demonstrates situations in which incomplete information prevents markets from achieving social efficiency. His paper with [[Andrew Weiss (economist)|Andrew Weiss]] showed that if banks use interest rates to infer information about borrowers' types (adverse selection effect), or to encourage their actions following borrowing (incentive effect), then credit will be rationed below the optimal level, even in a competitive market.<ref>{{cite report | last1=Stiglitz | first1=Joseph | last2=Weiss | first2=Andrew | title=Macro-Economic Equilibrium and Credit Rationing (Working Paper No. 2164) | publisher = National Bureau of Economic Research | publication-place=Cambridge, MA | date=February 1987 | doi=10.3386/w2164 }}</ref> Stiglitz and [[Michael Rothschild|Rothschild]] showed that in an insurance market, firms have an incentive to undermine a 'pooling equilibrium', where all agents are offered the same full-insurance policy, by offering cheaper partial insurance that would only be attractive to the low-risk types, meaning that a competitive market can only achieve partial coverage of agents.<ref>{{Citation|last1=Rothschild|first1=Michael|title=Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information|date=1976|work=Foundations of Insurance Economics|pages=355–375|publisher=Springer Netherlands|isbn=9789048157891|last2=Stiglitz|first2=Joseph|series=Huebner International Series on Risk, Insurance and Economic Security |volume=14 |doi=10.1007/978-94-015-7957-5_18}}</ref> Stiglitz and [[Sanford J. Grossman|Grossman]] showed that trivially small information acquisition costs prevent financial markets from achieving complete informational efficiency, since agents will have an incentive to free-ride on others' information acquisition, and acquire this information indirectly by observing market prices.<ref>{{cite web|url=http://terpconnect.umd.edu/~wermers/ftpsite/FAME/grossman_stiglitz_(1980).pdf|title=On the impossibility of informationally efficient markets}}</ref>