Private information, contractual arrangements and Hayek’s knowledge problem

The increasing interest in Hayek’s theory of knowledge centres mainly on his analysis of the competitive market as an impersonal mechanism for the discovery of privately known economic facts. The paper argues instead that Hayek's notion of knowledge is at least as relevant for the analysis of the competitive market as an institution, and that Hayek's notion of knowledge emphasizes aspects of informational asymmetries in decentralized systems that constitute the subject matter for insightful understanding of contract theory.