Information disclosure in a local socio-economic system with tacit knowledge and information asymmetry

Abstract

We study the effects of institutional information disclosure on the market equilibrium in a local market with knowledge asymmetry and scarce information. The purpose of our work is the analysis of long-term efficiency of a dedicated institutional mechanism of information disclosure for such a market. The paper presents the game-theoretic model of a local property rights market with an infrastructural institution disclosing non-personalized information in a system with a combination of market elements, administrative and shadow economy. For each object, there is some hidden non-transferrable information essential for assessment. Under such conditions, the influence of subjective biases on the market equilibrium can be described as a Bayesian probability model of adverse selection. In the elaborated model, the equilibrium parameters are theoretically analyzed. It is shown that information asymmetry in the modeled systems leads to an irrational allocation of investment resources. It is shown that the infrastructural institutions disclosing non-personalized information are not only unable to efficiently counteract adverse selection, but facilitate it.