Asymmetric Information (1)

This jargon is quite often mentioned in economics discussion. In general, asymmetric information is about unbalance (asymmetric) information among two or more parties. In situation where asymmetric information happens, one party has less information than other party. In other words, she only knows very well about herself but she does not know about other people, and vice versa. This situation is very common in our daily life. And, in economic life, this will create problem what so called as agency problem.

The agency problem is the problem in principal-agents relationship. Basically, in our workplace the principal-agent relationship can be easily observed. In an office, a head office (i.e. manager, supervisor, etc) interacts and communicates (or has a relationship) with her subordinates. In a faculty, dean or head of department interacts and communicates with professors and lecturers. The relationship between the head office or dean or head of department (called as principal) and subordinates or professors/lecturers (called as agent) has not always resulted in a good sinergy or cooperation. To some extent, both parties are conflicting each other. The principal concerns more on the achievement of goals meanwhile the agents concerns more on the compentation or other daily practical needs. It is often observed that the agents did not work as the principal wants since the agents feel that they can not get appropriate compentations. The agents pretend to be good and hard workers only when the principal is arround them. As a result, the task assigned to the agents was not excecuted well.

Is asymmetric information be overcame so that the agency problem can be resolve ? The answer, of course, is yes. It will be soon written down here.


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