David B. Shemano wrote:
I really am unfamiliar with the whole importance of the debate regarding Akerlof. What is the point? That there are certain markets where information imbalance leads to less than optimal results? That the Austrians believe entrepeneurs will tend to reduce the problem, while you (or Akerlof) believe there is some structural problem that prevents entrepreneus from reducing the problem?
For Hayek prices must reflect scarcity value. This is necessary in order for people to make calculations that will bring about the consistency of plans. To their credit, Austrians reject the perfect or complete information assumption as a way to ensure prices become "more and more correct." Consequently, they need to show why people will not make systematic errors even when they do not have enough information.
Akerlof and Stiglitz have shown that prices do not reflect scarcity value in many situations where information is absent. When "quality depends on price," as Stiglitz frames it, prices will not tend towards their scarcity values. For Austrians like Steven Horwitz prices will become "more and more correct" only under "free markets." So if private markets can't get prices right, then the Austrians have a problem.
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