World-wide-welfare: A micro-economic analysis of ‘the new economy’

2. World-wide-welfare: A micro-economic analysis of ‘the new economy’* P. Jean-Jacques Herings and Maarten Pieter Schinkel 2.1 INTRODUCTION Worldwide, there has been - and still is - a lot of interest in what is generally referred to as ‘the new economy’. It concerns economics that relates to digital information and the hardware and software that deals with it. The new thing about that form of economics is that, as a result of the digitalization of information, its exchange and multiplication can take place at close to zero marginal costs. With that, comes that an increasingly large number of people have an ever better wall or wireless connection to the new infrastructure that is formed by the world-wide-web. This allows for very fast, inexpensive and extensive transportation of information. The economic relevance of these developments is large and growing. An ever-expanding economy flourishes on the Internet, in which supply and demand meet in virtual markets. As a result, old physical markets are being substituted at a continuous and rapid rate. On the other hand, many new markets have emerged such as the one for Internet guidance and many new markets will certainly open in the years to come. With that, the Internet is increasingly responsible for added value, which is, despite the burst of an early bubble, reflected in the value of firms engaged in information trade on the stock exchanges around the world. Two of the many things that are written about the new economy meet the eye. First, the approach….