Information Problems in Competitive Markets and Their Impact on Labor Markets

Information Problems in Competitive Markets and Their Impact on Labor Markets

Hasan Bilgehan Yavuz (Adana Science and Technology University, Turkey)
DOI: 10.4018/978-1-5225-5393-9.ch008

Abstract

Economic agents should be fully informed in order to maximize welfare by removing market disruptions. The full knowledge which is one of the assumptions of the traditional economic approach has been rejected in the recent studies and it is stated that the information is lacking and asymmetric and therefore market disruptions come to the forefront. Information created under certain conditions that economic agents use in their decisions and actions does not remove the problems of adverse selection and moral hazard. Information asymmetry among individuals will be minimized through institutions to be established in the obtaining, usage, and transfer of knowledge. Institutions such as signaling and discrimination, which will be created in the labor market in particular, will be able to provide economic efficiency by selecting qualified staff and paying based on efficiency.
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1. Uncertainity

In economic science, there is a tendency towards the equilibrium situation in terms of the functioning of all markets. It is presumed that in a perfectly functioning market, especially at the markets where perfect competition conditions prevail, people have every kind of knowledge they need, as a result they are balancing their decisions or actions. A person's action can provide personal balance as a part of a specific plan. We can also assume that different actions of different individuals are balanced in a competitive system. This balance can be true for isolated individuals. However, it is impossible for the individuals to formulate their plans with different expectations and, more importantly, to discuss the balance in terms of all the individuals in the planning phase. For such a balance, the plans of all the individuals should be made in harmony with each other. However, an individual's plan will represent a data set for the other individual. Once this balance is achieved, it will continue until an external influence or new information emerges. (Hayek, 1937).

The only factor that affects the structure of markets is not equilibrium. The markets have a sophisticated complex structure. Because there are many variables affecting the functioning of markets (Hayek, 1974). These variables affect the distribution of the resources in the economy and ultimately affect the welfare level directly.

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