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Whither socialism? By JOSEPH E. STIGLITZ. Wicksell Lectures. Cambridge and London: MIT Press, 1994. Pp. xii, 338. $29.95. ISBN 262-19340-X. JEL 95-0790
There is little doubt that Joseph Stiglitz ranks in the elite of theoretical economists. Nor can there be much doubt that the collapse of state socialism throughout Eastern and Central Europe, and the former Soviet Union in the late 1980s ranks as one of the most significant political/economic events to have occurred in this century. Thus, the meeting of a keen economic mind with a supreme economic/political problem promises much to the reader. Whither Socialism? accomplishes many things throughout its pages, but what it is unable to accomplish is perhaps the most telling. Stiglitz' book, despite its high promise, does not provide the reader with any new and bold conjectures on why state socialism collapsed nor does it provide much more beyond the usual platitudes about how one could maneuver the path from "here to there." But the promise of the book does serve to open the reader up to the real contributions that Stiglitz has to offer in terms of the information-theoretic revolution in economic science. In fact, perhaps the disappointment here is that the author accomplishes too much in this regard and not enough in the analysis of socialism and the transition despite the apparent obvious connection between the two programs.
The book can be usefully read as a survey of the main results of Stiglitz' impressive research program in information-theoretic economics. These contributions add up to a formidable challenge to the Arrow-Debreu model. The author's critique of the standard model is thorough. Information is never perfect; competition is real, not perfect; and in a world of imperfect information and real competition the two fundamental welfare theorems of the Arrow-Debreu world no longer hold. Furthermore, the world of imperfect information and real competition corresponds in a more direct manner to the real world of business and economic life. Asymmetric information, strategic behavior (principal/agent problems, moral hazard issues, and adverse selection), are omnipresent in the organization of modern economic affairs. Theories which...