Who is Joseph Stiglitz?

Joseph Stiglitz is an American New Keynesian economist and winner of the 2001 Nobel Memorial Prize in Economics for his research on information asymmetry. During the Clinton administration, Stiglitz was the chairman of the President’s Council of Economic Advisers, (CEA.) He is also a former senior vice president and chief economist of the World Bank, notably fired for offering a dissenting view about World Bank policy during the 1999 Seattle WTO riots.

Key Takeaways

  • Joseph Stiglitz is and American economist and recipient of the 2001 Nobel Prize.
  • As a New Keynesian economist, Stiglitz' research has contributed to the understanding of how microeconomic phenomena can provide a foundation for macroeconomics.
  • Stiglitz' research includes groundbreaking work on information asymmetry in many different applications, monopolistic competition, and risk aversion.

As a younger man, Stiglitz was a recipient of the John Bates Clark Medal, an award given to economists under forty who have made substantial contributions to the field of the economic sciences in the United States. A notorious critic of the International Monetary Fund (IMF), Stiglitz has the background to back up his views in his many positions in global economic circles, as well as the many articles and books he has written about his experiences with international economic issues.

Understanding Joseph Stiglitz

Born in Indiana in 1943 to an insurance salesman and a schoolteacher, Joseph Stiglitz attended Amherst College in Massachusetts and graduated in 1964. As a senior, he spent a summer studying at MIT, where he would later pursue his graduate work and serve as an assistant professor. In 1965, he became a research fellow and went to the University of Cambridge as a Fulbright scholar. From 1966–1970, he studied at Gonville and Caius College at Cambridge and thereafter held academic professorships at Yale, Stanford, and Princeton, before settling into Columbia University in the year 2000. Three years later, in 2003, Stiglitz was awarded the title of “university professor,” Columbia’s highest tenured position, and Stiglitz now teaches and lectures at Columbia but devotes much of his time towards international economics issues.

Awards

In 1979, Stiglitz was the winner of the John Bates Clark Medal for economists under forty making significant contributions to the field, based on his work on information asymmetry, risk aversion, and imperfectly competitive markets. Later, Stiglitz would be awarded the Nobel Prize in the Economic Sciences for his work on the theory of information asymmetry, including the use of screening by insurance companies to sort customers by type in order to manage risk. For his work, he received a shared prize of the award in the year 2001 with George Akerlof and Michael Spence.

In 2009, Stiglitz was appointed to the Pontifical Academy of the Social Sciences, and in that same year he was named the chairman of U.N. Commission on Reforms of the International Monetary and Financial System by the president of the United Nations. In 2011, Time magazine named Stiglitz as one of the “100 Most Influential People in the World,” and in that same year, he also became the president of the International Economic Association.

Stiglitz has written an innumerable number of academic papers and scholastic books, as well as some for a popular audience as well. The latest of these is: The Great Divide: Unequal Societies and What We Can Do About Them in 2015 and The Euro: And its Threat to the Future of Europe in 2016.

Research

Stiglitz’ list of honors, awards, and achievements is staggering, but as a New Keynesian economist, the arc of his writings and teachings focus on microeconomic phenomena that can provide a basis for some of the macroeconomic theories developed by Keynesian economics. The implications of his research and the content of his popular writing talk about how government regulation of financial and corporate objectives is essential to a free, fair, and prosperous society.

Information Asymmetry

Stiglitz' most highly recognized contributions are in the area of information asymmetry. His work on this subject is a major component of his New Keynesian research program, in that it explores various ways in which imperfections in information shared between market participants can lead markets to fail to reach efficient, competitive outcomes. These can include insurance markets, where insurers can use various screening methods to sort the market by consumer type; financial asset markets, where even small information costs can allow widespread free-riding on those who acquire and use information by investor; and labor markets, where principal-agent relationships between employers and employees can lead to above-market-clearing wages that are efficient for both groups, but increase overall unemployment.

Risk Aversion

Some of Stiglitz' early work focused on the concept of risk aversion, which is when people attempt to lower their exposure to uncertainty. His work in this area contributed to the theoretical definition of risk aversion and the logical consequences of risk aversion to subjects, such as an individual savings, portfolio investment, and business production decisions.

Monopolistic Competition

Stiglitz helped to create the theory of monopolistic competition, which tries to account for competitive markets where firms and products can be differentiated from one another. In monopolistic competition, things like advertising, branding, and product differentiation can contribute to barriers to entry for new firms, which violates the assumptions of perfect competition and can prevent the market from achieving an economically efficient outcome. 

Public Finance

Some of Stiglitz' work is based on the ideas of 19th-century economist Henry George. George famously advocated the application of a single tax, based on the unimproved value of privately owned land to finance all government. Stiglitz mathematically formalized George’s idea to show that because land buyers compete to obtain public goods by obtaining land toward which public goods are directed, the market value of land will reflect the value of public goods and that a single tax on land values can provide the optimal quantity of public goods demanded by the market.