Monday, April 6, 2015

Asymmetrical information and good intentions

I am almost finished reading Christopher J. Coyne's Doing Bad by Doing Good and should have a review shortly.

In the meantime, this essay, The End of Asymmetric Information by Alex Tabarrok and Tyler Cowen, touches on an issue which is also embedded in an unstated fashion in Coyne's criticism of various humanitarian enterprises. Tabarrok and Cowen on asymmetrical information and how it is being affected by Big Data and free data.
Might the age of asymmetric information – for better or worse – be over? Market institutions are rapidly evolving to a situation where very often the buyer and the seller have roughly equal knowledge. Technological developments are giving everyone who wants it access to the very best information when it comes to product quality, worker performance, matches to friends and partners, and the nature of financial transactions, among many other areas.

These developments will have implications for how markets work, how much consumers benefit, and also economic policy and the law. As we will see, there may be some problematic sides to these new arrangements, specifically when it comes to privacy. Still, a large amount of economic regulation seems directed at a set of problems which, in large part, no longer exist.


A lot of economic theories about asymmetric information, while logically correct, have been rendered empirically obsolete. We are not suggesting that this new world is perfect in every way, and indeed privacy is one of the major concerns. Still, the passing of many information asymmetries will lead easier trade, higher productivity, and better matches of people to jobs and to each other.

These changes also cast new light on the costs of a political system that produces many new regulations but repeals very few old ones. The American regulatory apparatus is increasingly out of date. It is geared to problems that peaked in the previous generation or even earlier. We should revisit the topic of regulatory reform, with an eye toward making more regulations temporary, or having automatic sunset provisions, unless they are consciously and intentionally renewed for reasons of their continuing usefulness.
Big, simplistic linear thinking policy solutions to dynamic, self-adjusting multi-causal complex systems produce abundant failure and often outcomes more deleterious than the original problem. Our desire to fix things and make them better, our good intentions, tends to blind us to the negative outcomes. When information about real outcomes is asymmetrically horded, no pressure for change is brought to bear. Only when that information becomes accessible to everyone and when people are held accountable for actual outcomes rather than for good intentions will improvements in actions occur.

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