INFORMATION DISTORTIONS IN SOCIAL SYSTEMS: THE UNDERGROUND ECONOMY AND OTHER OBSERVER-SUBJECT-POLICYMAKER FEEDBACKS

Edgar Feige and Robert R. Alford
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Robert R. Alford: University of California-Santa Cruz

Macroeconomics from University Library of Munich, Germany

Abstract: A vast array of information about economic activity, political behavior and social trends are summarized in quantitative measures, sometimes in a single number such as GDP. Because of their apparent objectivity, simplicity and universality, these measures are used as a basis for both scientific investigations and in the formulation of public policy. These critical ‘facts” are often subject to what we call observer-subject- policy feedback, an interactive mechanism that can seriously distort and bias the economic, social and political indicators that are typically treated as exogenous observations on our complex systems. In fact, information is often endogenous to the system being studied, and a failure to recognize the observer-subject-policymaker feedback mechanism can result in “rational” decisions being based on ‘irrational” information systems. Indeed, we argue that the information content of social indicators is likely to become distorted by the very operation of the economic, social and political institutions they seek to describe. The unobserved economy is an exemplar of this interactive process. Reference: The Underground Economies: Tax Evasion and Information Distortion. Edgar L. Feige (ed.) Cambridge University Press, 1989.

Keywords: Underground Economy; Unobserved Economy; observer-subject- policymaker feedback; information bias; policy distortion. (search for similar items in EconPapers)
JEL-codes: C8 D78 E61 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2005-01-20
New Economics Papers: this item is included in nep-mac
Note: Type of Document - pdf; pages: 23
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