Monday, December 4, 2017

Capitalism and Asymmetric Information

Richard Ebeling emails:

Dear Bob,

My latest article on the website of the Future of Freedom Foundation is on, “Capitalism and Asymmetric Information.”
Criticisms of capitalism never end, regardless of the personal freedom and economic betterment that has accompanied the emergence of the competitive market system in modern history. One such criticism is that
because people possess less than perfect knowledge in the marketplace, sellers are able to take advantage of buyers who will not know as much about the qualities and characteristics of the goods suppliers are bringing to market.

Yet, the advantage of free markets is the creation of profit opportunities through discovered ways to better serve consumers, including solving “asymmetric” knowledge problems. As I explain in the article, there have emerged a variety of self-interested incentives for sellers to inform and backup information about the nature and features of the products they sell, which if not followed or introduced threaten their own success in a market setting of competitors eager to win the business of buyers for their rival products.

If there is an area of concern about asymmetric information and the potential to take untoward advantage of people in the society, that concern should be directed to government and the political process. In the political arena there are many gains to be made by politicians, bureaucrats and special interest groups by misinforming and distorting what they are doing to the detriment of others who pay taxes and are hampered by regulations.


1 comment:

  1. It seems to me that the person with the lesser amount of information can simply insert into the parties' written agreement language that requires the person with more information to disclose that information prior to closing and that failure to do so, if material, is grounds to rescind the agreement. I'm sure Jordan Peterson could explain the psychology of the folks who don't grasp this simple concept.