Asymmetric information is an important idea when we talk about public goods. It can cause problems in the market in several ways:

1. Inefficient Supply:

   • Public goods include things like national defense and public parks. These are often not provided enough because people might not share the truth about how much they are willing to pay. For instance, not providing enough public goods can lead to a loss in welfare, estimated at £1-2 billion every year in the UK.

2. Free-Rider Problem:

   • Some people want to use public goods without paying for them. This leads to not enough money being collected to support these goods. Studies show that about 25% of people might choose not to pay for public goods, which creates a gap in the funding needed.

3. Uncertainty in Value:

   • When there is asymmetric information, it becomes hard to figure out the true value of public goods. Research indicates that around 70% of economists believe public projects often get resources misallocated because the values are not accurately measured.

4. Market Signals:

   • Public goods do not have price signals like those seen in private markets. This makes it difficult to decide how to use resources, which can lead to market failures. These misallocations can cause losses estimated at up to 0.5% of GDP in welfare.