Asymmetric Information

  • A. Postlewaite
Part of the The New Palgrave book series (NPA)


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.


Public Good Asymmetric Information Public Economic Initial Endowment Potential Buyer 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Akerlof, G. 1970. The market for lemons. Quarterly Journal of Economics, August, 488–500.Google Scholar
  2. Atkinson, A. and Stiglitz, J. 1980. Lectures on Public Economics. New York: McGraw-Hill.Google Scholar
  3. Bliss, C. and Nalebuff, B. 1984. Dragon-slaying and ballroom dancing: the private supply of a public good. Journal of Public Economics 25, August, 1–12.CrossRefGoogle Scholar
  4. Holmstrom, B. and Myerson, R. 1983. Efficient and durable decision rules with incomplete information. Econometrica 51, November, 1799–1820.CrossRefGoogle Scholar
  5. Kreps, D., Milgrom, P., Roberts, J. and Wilson, R. 1982. Rational cooperation in the finitely repeated prisoners’ dilemma. Journal of Economic Theory 27, August, 245–52.CrossRefGoogle Scholar
  6. Milgrom, P. and Roberts, J. 1982a. Predation, reputation, and entry deterrence. Journal of Economic Theory 27, August, 280–312.CrossRefGoogle Scholar
  7. Milgrom, P. and Roberts, J. 1982b. Limit pricing and entry under incomplete information: an equilibrium analysis. Econometrica 50, 443–59.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, September, 1144–75.Google Scholar

Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Limited 1989

Authors and Affiliations

  • A. Postlewaite

There are no affiliations available

Personalised recommendations