Current Volume 8
Abstract
This paper explores the concept of information asymmetry within the framework of advanced microeconomic theory. Information asymmetry, where one party in an economic transaction possesses more or better information than the other, represents a fundamental departure from the neo-classical assumption of perfect information. This imbalance leads to inefficiencies that manifest in various forms, most notably adverse selection, moral hazard, and signaling problems. Through a detailed review of theoretical contributions by Akerlof (1970), Spence (1973), and Stiglitz and Rothschild (1976), this study illustrates how asymmetric information distorts market outcomes and necessitates the design of corrective mechanisms. The paper also applies principal-agent models and game-theoretic tools to explore the role of contracts, incentive alignment, and institutional responses in mitigating informational distortions. Real-world applications from the insurance industry, labour markets, and financial systems are examined to demonstrate how theory informs practice. Special attention is given to the design of mechanisms such as screening, signaling, and incentive-compatible contracts that help resolve information disparities. The paper concludes with a discussion on the broader implications of information asymmetry for policy design, especially in developing economies and digital markets, where informational frictions are particularly pronounced. By synthesizing foundational theories with empirical applications, this paper contributes to a deeper understanding of how asymmetric information shapes microeconomic behavior and market efficiency.
Citations
IRE Journals:
Dickson Oliech Osuri , Dr. Yasin Kuso Ghabon
"Information Asymmetry In Kenya: Advanced Microeconomic Analysis and Applications" Iconic Research And Engineering Journals Volume 8 Issue 12 2025 Page 260-266
IEEE:
Dickson Oliech Osuri , Dr. Yasin Kuso Ghabon
"Information Asymmetry In Kenya: Advanced Microeconomic Analysis and Applications" Iconic Research And Engineering Journals, 8(12)
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