What models explain how political influence and information asymmetry reinforce gains in money and public claims?

Question

**Looking for resources on information asymmetry, monetary trust, and political influence**

I have a B.A. in economics with a finance concentration from Roanoke College, but I have been away from academic economics for some time. Most of my recent work has involved process analysis, contracts, financial reconciliation, and looking at how written rules affect actual outcomes.

I have been thinking about whether the lemons problem can be applied to money, government debt, and other public claims. I may simply be combining theories that have already been addressed elsewhere, so I am mainly looking for reading recommendations or help identifying the correct area of research.

The basic idea is that the public accepts money or government obligations without being able to fully observe their future quality. The government or issuing authority has more information, but it also has the ability to change that quality later through monetary, tax, redemption, or regulatory policy.

There may be an additional problem when parties with concentrated capital have better access to information and greater influence over those policy decisions. A favorable policy produces additional capital, and some of that capital can then be used to obtain more access or influence during the next round. This creates a repeated cycle:

capital creates influence, influence affects the rules, the changed rules create additional capital, and the additional capital strengthens future influence.

The losses may then be spread across currency holders, taxpayers, small savers, public services, or future participants who were not represented when the decision was made.

I initially approached this through Akerlof’s lemons problem, but it also seems related to Stigler’s economics of information and theory of regulatory capture, along with moral hazard, rent seeking, public choice, and repeated games. What I am having trouble determining is whether there is already a model that brings these parts together.

One historical example I am considering is Hamilton’s funding system and the whiskey excise. Federal policy increased the value and credibility of government securities, while some original holders had already sold their claims at substantial discounts and frontier communities carried part of the tax and enforcement burden. I am not presenting that as proof of the larger argument, only as a possible case for examining how information, political authority, and the distribution of gains interacted.

Is there an established literature or model that would be the best place to start? I would especially appreciate recommendations that could help me separate adverse selection from moral hazard and regulatory capture in this type of problem.

Answer 1

Your question is interesting because it asks whether these are fundamentally separate problems or different manifestations of a more general process.

My impression is that the literature contains many pieces of what you’re describing, but not necessarily a single unifying model. As you noted, Akerlof’s adverse selection, Stigler’s economics of information, moral hazard, regulatory capture, rent seeking, public choice, principal-agent theory, and repeated games each describe part of the picture. They overlap, but each emphasizes a different mechanism.

For that reason, I’ve been approaching a similar problem from a somewhat different direction while developing a behavioral-economic model called the Productive Value-Productive Power (PV-PP) framework. It is still under development, so I certainly wouldn’t present it as an established alternative to the existing literature, but one of its motivations is precisely the kind of question you’re asking.

The framework treats money, political influence, information, institutional authority, reputation, and similar assets as different forms of Productive Power (PP) that affect future exchanges between participants. From that perspective, the common structure is not simply

capital → influence → rules → capital

but something more general:

Productive Power → influence over interaction structure → Productive Value exchanges → updated Productive Power

In this view, information asymmetry, regulatory capture, lobbying, unequal bargaining power, or preferential access to policymakers are not separate fundamental phenomena. They are mechanisms that alter the exchange process itself. Those altered exchanges redistribute productive power, which then changes the participants’ ability to shape future exchanges. The recursive nature of the process is what makes it self-reinforcing.

One implication is that the same architecture is not limited to money or politics. Similar feedback loops appear wherever accumulated productive power changes future interactions—for example through reputation, technological advantage, organizational control, scientific authority, or social influence.

Whether that perspective ultimately proves useful remains an open research question, but it has led me to view many of these literatures as examining different aspects of the same underlying recursive process rather than unrelated phenomena.

As for established literature, I would probably look most closely at work combining public choice theory, regulatory capture, institutional economics, principal-agent theory, repeated games, and information economics. Those fields collectively seem to come closest to the phenomenon you’re describing, even if they stop short of treating it as a single generalized interaction model.