From market failures to market opportunities: managing innovation under asymmetric information

Abstract

This article presents a review of the literature that focuses on the role played by information asymmetry in the management of innovation. Results are organised in two categories. On the one hand, information asymmetry is considered as a major source of market failures because it affects the quality of innovative goods and services available on the market and disturbs the process of allocating resources efficiently. On the other hand, information asymmetry is presented as a major source of market opportunities, the latter existing only because individuals do not possess the same - exhaustive and complete sets of - information. Therefore, information asymmetry plays a dual role as it both generates market failures and gives birth to entrepreneurial opportunities. Within this framework, the article discusses the main implications of managing innovation under asymmetric information.