The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Asymmetric Information

  • A. Postlewaite
Reference work entry


The Arrow-Debreu model is the basic model in which the two classical welfare theorems of economics are expressed. Under quite general assumptions, it can be shown that, first, a competitive equilibrium allocation, or Walrasian allocation, is Pareto efficient (Pareto optimal); second, under somewhat different assumptions, any Pareto efficient allocation will be a competitive equilibrium allocation after some suitable redistribution of initial endowments. Implicitly or explicitly, the statement of the first welfare theorem assumes that all economic agents have the same information about all economic variables. This is not to say that uncertainty is ruled out; there may be uncertainty as long as all agents are identically uncertain. If this assumption of symmetric information is violated, the competitive outcome will no longer be guaranteed to be Pareto efficient. The introduction of asymmetric information into various economic problems has given us new insight into how market failures might arise and whether there may be governmental, or other non-market, corrections which can improve welfare. Several examples illustrating this are given below.

This is a preview of subscription content, log in to check access.


  1. Akerlof, G. 1970. The market for lemons. Quarterly Journal of Economics 84: 488–500.CrossRefGoogle Scholar
  2. Atkinson, A., and J. Stiglitz. 1980. Lectures on public economics. New York: McGraw-Hill.Google Scholar
  3. Bliss, C., and B. Nalebuff. 1984. Dragon-slaying and ballroom dancing: The private supply of a public good. Journal of Public Economics 25: 1–12.CrossRefGoogle Scholar
  4. Holmstrom, B., and R. Myerson. 1983. Efficient and durable decision rules with incomplete information. Econometrica 51: 1799–1820.CrossRefGoogle Scholar
  5. Kreps, D., P. Milgrom, J. Roberts, and R. Wilson. 1982. Rational cooperation in the finitely repeated prisoners’ dilemma. Journal of Economic Theory 27: 245–252.CrossRefGoogle Scholar
  6. Milgrom, P., and J. Roberts. 1982a. Predation, reputation, and entry deterrence. Journal of Economic Theory 27: 280–312.CrossRefGoogle Scholar
  7. Milgrom, P., and J. Roberts. 1982b. Limit pricing and entry under incomplete information: An equilibrium analysis. Econometrica 50: 443–459.CrossRefGoogle Scholar
  8. Myerson, R. 1979. Incentive compatibility and the bargaining problem. Econometrica 47: 61–74.CrossRefGoogle Scholar
  9. Rosen, S. 1985. Implicit contracts: A survey. Journal of Economic Literature 23: 1144–1175.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • A. Postlewaite
    • 1
  1. 1.