Information economics

Roberto Ragozzino

Chapter 5 in A Guide to Key Theories for Strategic Management, 2026, pp 85-97 from Edward Elgar Publishing

Abstract: This chapter develops information economics as a lens for strategic management. Under asymmetric information, adverse selection suppresses exchange and distorts valuation. Firms mitigate hidden-information risk through signaling, screening, staged commitments, option-like designs, and contingent contracts. We distinguish the theory's ex-ante focus from agency theory's ex-post moral hazard and from transaction cost economics’ emphasis on asset specificity and opportunism, and we distinguish real options for environmental uncertainty from mechanisms targeting adverse selection. The framework informs mergers and acquisitions, alliances, initial public offerings, entrepreneurship, internationalization, corporate social responsibility, and human resource management. The prescriptive implication is direct: competitive advantage depends on managing information flows, investing in costly discovery about counterparties and emitting credible signals of firm quality, to enable efficient exchange and disciplined governance.

Keywords: Information Economics; Information Asymmetry; Adverse Selection; Signaling; Governance; Strategy (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035342846
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