Home » Asymmetric Information

Category Archives: Asymmetric Information

Sign up to the Barefoot Economist’s Newsletter

© Barefoot Economic Services

All content on this website (unless otherwise specified) is copyright of Barefoot Economic Services. Please acknowledge any content used in your work appropriately. Thank you for your consideration.

Social Impact Bonds: Aligning Incentives and Social Impact

You have probably been approached on the street to donate to a social or environmental cause by an enthusiastic spruiker. If you are like me, you are torn between two impulses: one to protect yourself from being ripped off, but the other to help. Because I can’t verify if my donation will actually make a difference, I usually don’t donate. This is an example of what economists call ‘asymmetric information’; the potential donor has little or no information on how their donation may help, whereas the charity organisation holds this information. Because of asymmetric information, people who may want to help do not help because they cannot verify (without incurring high costs) whether or not their donation had an impact. Social Impact Bonds (SIBs) are a way of overcoming this asymmetric information problem. (more…)