Rationality, Information Power and Institutional Theory

The aim of this paper is to show both the importance of the role played by ‘power’ in economic analysis and the way in which it leads to the exercise of economic power of one unit over other units through information asymmetry. This power often derives from inequality in the amount of information possessed. The problem then arises of identifying tools to reduce the asymmetric information that generates the ‘domination’ effect of one individual over another. Institutional arrangements have been identified as alternative tools to the price mechanism, in order to favour individual decisions in a scenario marked by power, information and cognitive bounds. Thus, it will be highlighted how power is often based on information asymmetry and how institutions can sometimes mitigate the latter, so as to counteract the formation of unbalanced relations.