This article discusses theories of sufficient or voluntary information as competitive theories to the requirement of perfect information in a free market.
Economic theory holds that markets reach equilibrium in the context of free or perfect information. In the real world we don’t have such information and yet we see markets working just fine. It’s also the case that privacy has a value so free information might not optimize on social utility.
While I agree that perfect information would result in an outcome we call efficient in some sense, it might be the case that less information could be present in the economy without reducing societal welfare significantly or at all, and it could even raise societal welfare to have a bit of privacy.
While free information can result in the efficient outcome, it could also be the case that the efficient outcome is reached in the context of sufficient or voluntary information.
The theory of sufficient information states that certain quantities and qualities of information are needed for a particular transaction or a wider market to succeed, but that this set of information may be a smaller set than the full set of perfect information.
If sufficient information is strictly true then the marginal value of information after a certain point is 0 which means that the economy works equally well with sufficient information as it does with perfect information. If sufficient information is essentially true but not strictly true then the only requirement is that the marginal value of information past a certain point is small, such that perfect information may yield a better result than sufficient information but only to an insignificant or unimportant degree.
We should be more concerned with the essential characteristics of a market and not the strict characteristics of a market because no real world market can have strictly free or voluntary information, and although it is possible to have strictly sufficient information it seems a highly unlikely case.
Interestingly, perfect, voluntary, and sufficient information need not conflict. While an economy is unlikely to have all three in the strict sense, it seems feasible in the long run for an efficient economy to possess all three in the essential sense.
Voluntary information means that each individual gives out the exact amount of information they wish to give out. This seems to be perhaps the most realistic model of information. Again, it need not conflict with the other models of information. Indeed, pairing voluntary and sufficient information gives us a great framework for anticipating market failure or success.
Where the voluntary set of information is also sufficient we expect the market to succeed, and where the voluntary set is insufficient we expect failure.
Interestingly, we can conceive of a case where coercion allows a set of sufficient information to exist when the voluntary set is insufficient. This may provide insight into the economics of justified or rational public action, coercion, and intrusive information collection and espionage.