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.
Highlights
The problem of inconsistency between the institutional environment and the market practice is especially acute at regional level
Under institutional transformation characteristic for the economic systems of the Russian regions, new economic institutions are still rather weak, institutional frameworks expand under the influence of decisions of some market participants [10]
Deals formally signed between legal entities are signed between particular physical persons, while the mechanisms of transaction costs reduction are based on personal responsibility and customary law norms [6, 11]
Summary
The problem of inconsistency between the institutional environment and the market practice is especially acute at regional level. The institutional aspect of organization of the property rights market is no less important both for analysis and for elaborating efficient methods of investment process management in a region [2, 4]. One should note the non-transparency of financial reporting of enterprises and the diffuse legal field. The latter consists, among other things, in expanding the practice of tax evasion with both “grey” and openly illegal means, economic inefficiency of complete formal observance of legal norms and the determinative role of customary law in insuring transactions [12, 13]
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