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Information economics or the economics of information is the branch of microeconomics that studies how information and information systems affect an economy and economic decisions.
One application considers information embodied in certain types of commodities that are "expensive to produce but cheap to reproduce." Examples include computer software , pharmaceuticals, and technical books. Once information is recorded "on paper, in a computer, or on a compact disc, it can be reproduced and used by a second person essentially for free." Without the basic research, initial production of high-information commodities may be too unprofitable to market, a type of market failure. Government subsidization of basic research has been suggested as a way to mitigate the problem.
The subject of "information economics" is treated under Journal of Economic Literature classification code JEL D8 – Information, Knowledge, and Uncertainty. The present article reflects topics included in that code. There are several subfields of information economics. Information as signal has been described as a kind of negative measure of uncertainty. It includes complete and scientific knowledge as special cases. The first insights in information economics related to the economics of information goods.
In recent decades, there have been influential advances in the study of information asymmetries and their implications for contract theory, including market failure as a possibility.