This is a post about asymmetric information and costly monitoring. Back in the year 1977, suppose that I had a 17 year old son who was a great football player for a middling high school team. How would college scouts discover him and lobby the head coach to recruit him? In this age before cell phones and YouTube, the scouts would drive to the game and sit there. These transportation and time costs acted as a barrier to entry giving this scout some monopoly power. If he discovered that my son is great, he would have an edge because this information would not be public information.
Fast forward to 2014 and repeat this experiment. Similar to other "middlemen" (i.e. travel agents), the Internet should almost eliminate the need for such talent scouts as I would sent a bunch of videos of entire games of my son playing and send them to the coach. Now, the coach of a college football team is a busy guy. He can't watch all of these tapes. How would he filter these? Using "big data" techniques, he could use a predictive model to form a prediction of the likelihood that my kid would accept a scholarship if offered (based on my zip code's distance from his school, my kid's SATs and other things my kid stated in his application). For the subset of those high school football players with a high propensity score (i.e the probability of attending university j if offered a scholarship), an assistant coach could go through the videos to search for the best fit for the team.
Similar to "Money Ball", this sketch highlights how emerging technology affects the assignment process of how high school football players join a specific football program.
To an urban economist, the interesting point about this example is that in the past there was localized information (that my son was a star) that could only be known by bearing a time cost to come watch him play. Zero cost video has eliminated this cost and made the information "public information" for anyone who watches the video of him playing. We achieve better matching because of this transition.