Asymmetric information as a market failure in retrospect

The aim of this chapter is to present the evolution of the economic theory which explains the essence of market failure. I offer a retrospective presentation of the scientific discourse reconstructed on the basis of the subject literature research. The analysis begins with reflections on rationality, knowledgeknowledge and information. Then, on the basis of the neoclassical criterion of efficiency, various kinds of market failure are distinguished. By emphasizing the significance of the works of F. M. Bator in the 1950s, the author points at the relationship between market failure and maximization of welfare as understood by Pareto. The new approach to the issue of rationality which emerged in the 1950s thanks to H. Simon’s works made the issue of knowledge and limited access to information an integral element of the disputes concerning market failure. Taking into account the asymmetry of information, as emphasized by J. Stiglitz, allowed scientists to distinguish the old approach to market failure from the new one. Presenting the new approach to market failure the author points at the importance of the works of such economists as G. A. Akerlof, J. Stiglitz, B. C. Greenwald, and A. Weiss.