Information asymmetry
Asymmetric information (german asymmetric information ) is an economics term to refer to the state in which have two parties to enter into and / or performance of a contract does not have the same information. Dealing with problems arising from asymmetric information is the subject of information economics (English economics of information) as well as the economic analysis of ( private ) law.
- 4.1 problems on the example of a joint venture
- 4.2 Hidden characteristics 4.2.1 To overcome information asymmetry
- 4.2.2 interest alignment
- 6.1 Books
- 6.2 Papers
Neoclassical
A central assumption of neoclassical economic models is the complete information, ie, the players know all the environmental conditions and can observe the actions of their parties. Information is available free of charge, contracts are complete, their fulfillment can be seen free of charge and fully enforced.
Despite this not given in reality acceptance neoclassical models can be used in certain areas with good results, namely when a Partialmarkt the model of the perfect market comes close, for example, in securities trading.
New Institutional Economics
In the new institutional economics, however, the assumption of bounded rationality was introduced explicitly. Information gathering is no longer free, but also causes transaction costs.
Depending on the target statement differentiates three different approaches within the new institutional economics:
- The theory of property rights ( property rights theory ) is concerned with action and property rights
- The transaction cost theory is concerned with the transactions involving the transfer of property rights and the resulting costs
- The principal-agent theory has been concerned with customer-contractor relationships.
The problem of asymmetric information
All neoinstitutionalist approaches start from bounded rationality, however, the problem of asymmetric information is mainly discussed in the principal-agent theory. Considering this is a relationship between a principal (principal / principal) and a contractor (agent), which is characterized, inter alia, that the principal has less information than the agent.
One distinguishes three basic types of asymmetric information:
Hidden characteristics
In type hidden characteristics (hidden characteristics ) knows the principal specific, immutable ( or no longer free variable ) properties of the agent ( or the goods offered by him and services) before the contract is not, so he can improve the quality of the service offered prior to contract fulfillment ( ex ante not judge ). Therefore, there is a danger that there will be adverse selection ( adverse selection), ie that systematically undesired contractors are selected. As an example of this is the one described by George A. Lemons Akerlof problem; another example is the insurance market if the insurer can not judge which represent the risk insured individually.
Hidden action and hidden information
In type hidden action and hidden information ( hidden action and information) enter the information asymmetries only ex post, ie after conclusion of the contract and during the contract. Hidden action means that the agent has discretionary leeway, the principal 's actions ( complete) can not observe. Hidden information is available if the principal can indeed observe the actions, but their quality (eg due to lack of expertise ) can not be estimated.
Examples of hidden action:
- Employment
- Stay in the workshop of a car
- Insurance relationships
Examples of hidden information:
- Patient - physician relationship
- Computer technician
- Seller
In both cases, the problem is that the principal after contract completion (ex post) can not judge whether the result was achieved by skilled efforts of the agent, or whether (or how much ) the environmental conditions have influenced the results. If you go, for example, with a head cold to the doctor and get prescribed medication, then it is rarely clear whether the improvement would not have occurred without medical assistance ( " A cold lasts a week you go to the doctor just seven days. " ) This ignorance the agent can exploit opportunistic without being exposed afterwards, which is called moral hazard.
Hidden intention
The last type is the hidden intention ( hidden purpose ). Even if the principal has opportunities to observe the actions of the agent, so if there are no hidden action or hidden information problems, then it may cause problems by, in certain cases still that the principal ex ante the intentions of the agent does not know. In cases where the principal investment, it can not be undone (irreversible specific investments, Eng. Sunk costs ), it comes in a dependent relationship to the agent. After conclusion of the contract, he has no way to move the agent to a desired behavior (no credible threat potential ). In this context, one speaks of the hold-up risk if the agent can exploit this to gain personal advantage at the expense of the principal. An example of this is the classic Entführungs-/Erpressungsfall. With the ransom drop, the principal has made an irreversible investment and relies on the good will of the agent, that it also meets the agreed portion (eg, release of hostages ).
Thus, the hold-up risk is not a problem of asymmetric information, but rather a problem incomplete contracts negotiated
Problems and possible solutions
Asymmetric distribution of information in cooperations can both before and after completion of a cooperation agreement affect. Ex ante, the problem of choosing the right partner. The asymmetric information prevents advantageous contractual relationships. It comes about a bad contract or even absolutely no contract. Ex post, ie in cooperation itself, asymmetric information may have a negative effect on the stability of cooperation. Therefore, one must try to get the problem of asymmetric information in the handle. There are doing different mechanisms for reducing asymmetric information, or to avoid the consequences thereof. The case against the ideal solution costs (in the broadest sense) are referred to as agency costs.
Problems on the example of a joint venture
On the basis of a joint venture as a special form of cooperation can be asymmetric information distribution between the partners as principals and the seconded to the joint venture cooperation managers clarify as agents. The selected co- managers can hide in the run unaware of certain properties, eg, by signaling greater readiness or better language skills feign (hidden characteristics ). In addition, the principals can after posting due to the ignorance of cultural differences do not adequately assess the agent's behavior or because of geographical distance is not observed. This results in the agent scope for performance restraint (hidden information / hidden action ). The specific investments made by the principals in the joint venture can not contract- compliant behavior of the agent, for example, be due to the threat of emigration or negligent operations, exploited ( hidden intention ).
Hidden characteristics
Here come as solutions in question the elimination of information asymmetry, the interest alignment.
To overcome information asymmetry
Solutions provides to the principal-agent theory:
By signaling ( signaling, signaling), the agent can indicate its properties. Here, the agent will cost upon himself to produce a specific signal. Here, the benefits of signal production ( benefits minus costs) for desired agent must be positive, negative for undesirable agents against it. Examples of signaling are high school diplomas, DEKRA used car seals and the like.
If the principal, however, costs takes it upon himself to learn more about the relevant characteristics of the agents are referred to as the screening. Examples include assessment centers, test drives and the like.
By a suitable contract menu you can achieve self selection. Here, the principal offers a variety of contracts, allowing for the different types of agents, only one contract is optimal. Examples are insurance contracts with different levels of deductibles. Choose the bad risks usually much more expensive tariff with no deductible, while good risks accept a higher deductible at lower contributions.
Interest alignment
Another possibility is to construct contracts so that only desirable agents would sign this. Only they have a self-interest to offer the performance under these conditions. Examples are guarantees, reputations, etc.
Hidden action and hidden information
This is the main means to reduce the risks, the interest alignment, for example, profit sharing, the agent ( incentive- compatible contract). The agents will fulfill their own interest, the desired performance from the principal. Examples include stock option plans for managers and product liability laws, reputation and the like. Here is the problem that the principal-agent theory of a risk neutral principal, but a risk-averse agent goes out, so that with a profit-sharing scheme, the agent must carry an increased risk, which is associated for him with costs.
By monitoring ( monitoring) the principal can try to make the acts of the agent observable and sanctionable. However, this causes monitoring costs; examples which may be called the corporate governance activities.
Costly state verification
Solution by means of incentive contracts, which specify payment terms as well as a control mechanism.
Hidden intention
The hold-up risk can only be met by means of interest alignment. Examples are guarantees, long -term contracts and offsetting transactions (mutual hold-up situation). Hold -up means that a party to a margin in his favor exploits that can observe this behavior but different. Examples: fraud, contractual loopholes, unfavorable contracts.
It is important to emphasize here that this is not a problem of asymmetric information in the hold-up risk.
Solutions:
- Replace cooperation by hierarchy
- Pledge or collateral
State solutions and market solutions
Regardless of whether the state solutions offered (state certifications, governmental financial statements as signaling, product liability law, warranty law, minimum standards ), or if the parties want to solve through their bilateral contract resulting from the information asymmetry problems, it always comes to agency costs. The ideal solution would be achievable with complete rationality and complete contracts in the neoclassical theory does not come into existence.
Since the state provides but unified institutions, the New Institutional Economics assumes that these state institutions the Parties shall facilitate the conclusion of the contract, since it can refer to these institutions. Example: If a customer walks into a department store, he does not read somewhere all posted terms and conditions ( GTC), since they are not allowed him unreasonable disadvantage. The store in turn has little cost to spend to promise him a two-year warranty, as this is already required by law.
But - despite the government unified institutions - will continue to set private signals (for example, give some automakers three-year warranty ), state regulation does not preclude a market solution. She sits in some areas only certain minimum standards, such as consumer protection, as the state assumes that adjusts itself not a sustainable market solution.