Tuesday, January 03, 2006

Hayek vs Stiglitz: Who is Right?

I was re-reading Hayek's 1945 piece, "The Use of Knowledge in Society" a couple of days ago.

As I understand it, one of Hayek's main messages in that piece is that due to the dispersed nature of certain kinds of knowledge (knowledge of particular time and circumstances), market is the best institution (compared with other known alternatives of course) humans have stumbled upon to help them utilize such knowledge in productive ways.

If so, then how should we reconcile Hayek's insight with what people like G. Akerlof and Joe Stiglitz, have argued: dispersed knowledge (or in their terms information asymmetry) is the source of market failure!

How can markets deal with the problem of dispersed knowledge effectively in one case (Hayek's view) and fail to deal with the same problem in the other (Akerlof's and Stiglitz's view)?

Comments are open.

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