Information Asymmetry and Entrepreneurship

Abstract The implications of information asymmetries for entrepreneurial action and decision‐making by resource providers are explored. It is argued that firms unable to manage the negative repercussions associated with information asymmetry will find it hard to survive or prosper. These obstacles can, however, be overcome, and three vehicles for doing so are introduced: development of specific institutions that cope with adverse selection, management of moral hazard through controls built into financial contracts, and information transfer through social networks. Research priorities tied to the paradoxes created by information asymmetries are identified.