Asymmetric information: Causes, consequences and the market and institutional responses

Abstract

One of the assumptions of perfect competition market model is symmetric (full) information of market participants. However, in reality, market participants are most often asymmetrically informed. The main objective of this analysis is to show that asymmetric information is almost ubiquitous, but that does not bring into question the usefulness of a general model of perfect competition, but points to the possibility of its expansion and concretisation. The second objective is to point out the consequences of asymmetric information of market participants and possibilities for their elimination or mitigation. In order to test and prove the defined hypotheses and realize the defined research objectives, methods of analysis and synthesis, abstraction, comparison, concretisation, generalization, and critical evaluation are used. The key research limitation is the inability of its empirical quantification and verification.

Keywords

• asymmetric information
• adverse selection
• inefficiency
• moral hazard
• signalling