Information and Islamic Finance in the Digital Era

The fact that information is valuable is not a surprise to a layperson, yet economists outside the realm of new institutional economics (NIE) would be amazed by this fact (Stigler 1961). This is because information in neoclassical economics is assumed to be perfect and costless, and such an assumption is a foundation stone for much economic theory, including the efficient market hypothesis. Refuting the costless information assumption renders many neoclassical economic interpretations of reality irrelevant and naive (Furubotn and Richter 2005). Given the vast economic literature on the value of information and the costs of transactions, it may well be best to start any discussion on the benefits of information technology (IT) in the context of such economic literature. More importantly, given the theoretical importance of information and transactions in financial systems, as well as the role of IT, it seems inevitable that IT in the light of NIE literature has a major role to play in financial systems.