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Information asymmetry favoring sellers: a policy framework

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Abstract

Four ‘traditional’ market failures are commonly used to justify public interventions to increase economic efficiency: public goods, externalities, natural monopoly, and information asymmetry. Despite the fact that information asymmetry seems to be the rationale for many programs of direct and indirect regulation on behalf of consumers, it is the least conceptually developed of the ‘traditional’ rationales in terms of problem diagnosis and policy prescription. Three questions are important: first, under what conditions does the potential for significant inefficiency due to information asymmetry exist? Second, under what conditions are private responses likely to prevent the inefficiency from being realized? And third, what are the candidate public interventions for reducing any inefficiency that does occur? Drawing on the growing literature on the economics of product quality, this paper provides a framework to help analysts answer these questions.

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Authors and Affiliations

  1. Faculty of Business Administration, Simon Fraser University, V5A 1S6, Burnaby, BC, Canada

    Aidan R. Vining

  2. Public Policy Analysis Program, University of Rochester, 14627, New York, USA

    David L. Weimer

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  1. Aidan R. Vining
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  2. David L. Weimer
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Vining, A.R., Weimer, D.L. Information asymmetry favoring sellers: a policy framework. Policy Sci 21, 281–303 (1988). https://doi.org/10.1007/BF00138305

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