Value Chain Glossary: Asymmetric Information
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Asymmetric Information
Information that is available to one or more individuals or firms, but is withheld from other individuals or firms. Information that is improperly manipulated and/or withheld can increase risk or decrease opportunity for value chain actors. Often, information is withheld because of an inherent lack of trust between actors. Strong horizontal and vertical linkages can help firms access information more easily.
Asymmetric access to information can adversely affect firms in a number of ways. Anecdotal evidence from the Guatemalan handicrafts value chain reveals that producer group leaders can take advantage of information that other members of the group do not have by:
- Withholding information about orders from the group, and then contracting with individual weavers outside the group. In this way, the leader is able to receive personal financial gain by serving as an artisan-broker, while the members of the group do not receive any income from the order.
- Receiving payment for the order in dollars, converting the currency, then deceiving group members about the exchange rate received. In this way, the leader pockets the difference between the actual and reported exchange rate.
- Paying group members a rate that is less than the rate paid by the buyer. In this way, the leader pockets the difference between the actual and reported piece rate.
- Pocketing funds that are provided for the social benefit and/or development of the group members (e.g., education funds). upgrade their skills, and market their products.[1]
In deciding to commit to a group, producers must weigh the potential benefits from participation against the potential risks.
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Footnotes
- ↑ [1] microREPORT: Weaving Micro and Small Enterprises into Global Value Chains. Dunn, Elizabeth; Villeda,Lillian. July, 2005.
