What is Asymmetric Information

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Asymmetric information is an aspect of economics referring to a state in which two parties enter into a contract for the fulfilment of the same information. Dealing with problems arising from asymmetric information is the subject of the information economics as well as the economic analysis of (private) law.

Asymmetric information enriches the economic reasoning, showing the difficulties of implementing a condition of the theory of perfect competition. The information is imperfectly distributed, some agents are transient and better informed than others.

In addition, the use of information does not fully follow the assumptions of rational agents (behavioral finance). Furthermore, the agent can divert the information to his advantage (misinformation).

Economists know that the model of perfect competition (MPC), a theoretical approximation does not adequately reflect reality. With the CPP model, we assume that economic agents are perfectly informed. But in actual markets, the existence of imperfect information is one of the phenomena of asymmetric information.

Under the CPP model, the main function is to inform the economic scarcity of a resource, especially given its quality. Depending on the objective there are three different approaches within the new institutional economics.

And these include the theory of property rights which is concerned with action and property rights. The transaction cost theory deals with transactions involving the transfer of property rights and the resulting costs. While the principal-agent theory deals in turn with the customer/contractor relationships.

All neo-institutionalist approaches are based on limited rationality, however, the problem of asymmetric information is discussed mainly in the principal-agent theory. The relationship between a principal and a contractor (agent), is characterized by the fact that the principal has less information than the agent.

Advertising is objectively a dual role: it is both informative and persuasive. The informational role can be analyzed as a simplification of asymmetric information. But it can also be analyzed as a means to develop beliefs, which is purely informative.

Besides the problems of adverse selection, asymmetric information can be understood in contexts where one of the contractors may have to change their behavior. The other partner is then in a situation characterized by the appearance of moral hazard.

Asymmetric information leads by example on the predictions of experts, and considering that experts should be content to present scenarios more or less likely and more or less informed, leaving policy makers to take their responsibilities.

A central assumption of neoclassical economic models relates to complete information, ie, the players know all the relevant conditions and can observe the actions of their parties.

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