(FORTUNE Small Business) – If you think that economic theories don't have much to do with the real-life challenges of running a small business, well, we forgive you. But Joseph Stiglitz, a Nobel Prize-winning Columbia University professor who last month published his latest book, Globalization and Its Discontents, may change your mind. FSB's Beth Kwon asked Stiglitz to explain what his studies of "imperfect markets" mean for small business people.

Explain what an imperfect market is for us noneggheads.

The basic idea is that various sides of the market have different information. For example, a lender doesn't have good information about a borrower. He knows some borrowers will repay and some won't, but he doesn't know which ones are which. One of the consequences of this is credit rationing. Banks don't know which small businesses to trust, so they limit the amount they're willing to loan any of them.

Is it better if small businesses are more forthcoming?

It's a double-edged sword. Transparency is very important for making markets function well. But small businesses worry about what a competitor would do with their information. My own impression is that those fears are not based on rational calculation.

Is there a way to increase transparency?

America's private markets have developed mechanisms, like venture capital firms, that specialize in obtaining information. But they haven't worked well in many areas where information is still pretty difficult to get. So there is a role for government: It can absorb the risks better than a private company. Loan defaults aren't going to bankrupt the country. That's why the government has established programs to provide credit for mortgages, small businesses, and student loans. Of course, if the government provides too strong a guarantee, the private sector won't have any incentive to perform its roles in screening and sorting. So it's a delicate balance.

Will the Enron fallout change the picture at all?

No one believes that there will ever be full disclosure--trade secrets are still going to be important--but Enron shows why good disclosure is crucial. They misrepresented themselves, there was an asymmetry of information, people got hurt, and now they're being taken to task. That is an important lesson.