|Subject||Business and Corporate Law|
|Sources / references||1|
|Description / paper instructions
Please follow the instruction attached. I have attached the readings assigned as well as an example of reading notes that I wrote. Please note that it has to be full 2 pages, single space, 10 pt. font.
Please follow the instruction above. I have attached the readings assigned to be reviewed, and it has to be full 2 pages, single space, 10pt. font.
Readings: Morality and Market Failures
Morality and Market Failures: Asymmetry of Information
The Author’s Main Argument
The article revolves around the notion of information asymmetry by insisting that the concept provides moral vocabulary and ability to think and act morally. Moreover, the report emphasizes the idea that ethics in market guidelines partly guides the normative model of market failures. For instance, the authors state that this approach ought to drive the examination of challenges and inappropriateness of IAs. Additionally,ethics provides solutions to externalities. The authors point out that the state is in a better position to handle market failures compared to the markets and private actors. Thus, this assumption implies that the state enjoys advantages that enable it to possess the necessary equipment for addressing failures in the economic sector.
Further, the article discusses why IAs lead to market failures by stating that they disrupt the concept of supply and demand since buyers and sellers lack adequate information concerning the product or service for sale. Another reason identified by the authors is that IAs promote pervasiveness during doctor-patient interactions. IAs also lead to market failures in the sale of second-hand cars, whereby the seller processes crucial information from the buyer to attain negotiation leverage.
Another argument raised by the authors is that the normative issues in IA fall into two categories, which are efficiency and equality. Concerning the first category, IAs disrupt market transactions by blocking Pareto enhancements and causing imperfections in the market. Consequently, IAs inhibit productivity by hiding crucial information during risk pooling, which may ultimately lead to unprecedented losses in the future. The authors insist that IA results in two cooperative problems whereby the first is that it lacks actuarial fairness as material responsibility shifts from beneficiaries of IA to non-beneficiaries. The second problem is that IAs disrupt insurance technicalities by discouraging social cooperation, which leads to the production of more significant risk.
The second category that revolves around equality points out that IA threatens individuals’ access to equal opportunities in the market. However, the authors put the blame on IA concerning the balance of information by stating that the agents cause the problem. Subsequently, the article touches on the public guidelines concerning IA. The authors recognize the forms of federal regulation to include compulsory disclosure, complimentary information, educating individuals, monitoring transactions, and controlling asymmetries. Finally, the authors focus on designing a normative theory for addressing market failures in public agencies.
What Are the Authors Teaching Us?
The lesson taught by the authors through the article pertains to the causes of market failures. For instance, negative externalities are the leading causes of market failures. Nonetheless, the report suggests that monopoly power as well as missing markets are also primary causes of failures in markets. Most importantly, the authors reveal why IA consequently contributes to unprecedented losses. Another lesson brought forward by the authors is the moral hazard issue. The notion of moral hazard represents instances when individuals conform to riskier actions after acquiring insurance. In all the cases, the behaviors after insurance do not reflect the actions before insurance as the former’s reactions are more hazardous compared to those displayed in the latter.
Another essential lesson gathered from the article is about the improper application of IA that leads to various moral issues. Firstly, IA should not sprout from manipulation or dishonesty since it would imply immorality. Secondly, IA should not acquire all the gains and benefits of collaboration. Thirdly, the article points out that IA should comprise transparency between the involved parties to prevent the occurrence of unplanned risks. Consequently, the authors introduce the concept of compulsory disclosure, which enhances opportunities by decreasing IAs. As an outcome, this assumption reveals that the notion involves minimal invasion as it does not need transformation in behavior.
Information asymmetry entails studying decisions during business transactions whereby one party processes more information than its counterpart. Thus, this fact showcases that IAs establish imbalance of power during such operations, which leads to market failure. In connection to that, the strength of the authors’ arguments is that it promotes the comprehension of IAs exhaustively. Therefore, the authors inform understanding by expounding on the notion and evaluating all its components. Furthermore, the primary argument presented by the author showcases significance not only to firms but to the state and the market as well. For example, firms can adopt the suggestions pointed out in the article to avoid the negative consequences of IAs.
Distributive issues, such as unfairness during insurance selection, negatively impact cooperation in addition to efficiency, which stems from imbalances witnessed between concerned agents. Hence, this situation implies that IAs contribute to inefficiencies due to the lack of balance when it comes to accessing vital information. The article asserts the need to create moral issues around distributive problems to assist in establishing and maintaining balance. As an outcome, this approach encourages the eradication of cooperation as well as transaction burdens, which ultimately promotes constructive market transactions that lead to beneficial results. Thus, the article showcases strength by examining distributive issues and deriving their solutions.
Public regulations on IA insist on the recognition of morally relevant actions rather than adopting management as the ultimate response. Moreover, the guidelines present options, such as allowing unregulated markets to control IA, handling matters in court, or executing self-regulatory regimes. In short, public regulations insist on the significance of federal agencies staying clear of market transactions and displaying minimal constraint on individual interactions. In connection to that, another strength of the article is that it enhances my training in the subject by promoting the understanding of public guidelines concerning IA that will assist in my future career.
The key takeaways outlined in the article are significant in understanding the business world. The notion of complementary information aims at solving IA issues by availing alternative sources of information at little cost. In other words,a complimentary report focuses on eliminating informational imbalances by encouraging equality of opportunities. Further, this strategy promotes the availability of multiple sources of information, which enhances access to more detailed data containing a myriad of opinions. I can apply the takeaway from the article to improve the handling of IA in institutions. For example, I can encourage the evaluation of IA to discover its challenges, which will help in developing appropriate solutions.
Another primary takeaway from the article is that IA presents harm as people cannot research and process the appropriate information that demonstrates accuracy and relevancy. The report also reveals that individuals lack enough cognitive abilities to acquire appropriate information. Consequently,the authors insist on the significance of offering specialized education to promote the conceptualization of IA. Therefore, I can use the takeaway by encouraging education that improves the ability of people to process information. The article points out that knowledge does not advance the standards of expertise. As a result, this approach will guide my expectations during the education process as my primary goal will be enhancing the cognitive abilities of participating parties. Most importantly, the takeaway will assist in improving my communication skills to allow the transparent and efficient transfer of information between learners and teachers. Hence, the article remains crucial as it covers multiple concepts found in my field of study that will guide future perceptions and actions.
Landes, X., &Néron, P. Y. (2018). Morality and market failures: Asymmetry of information. Journal of Social Philosophy, 49(4), 564-588.