Local knowledge problem

In economics, the local knowledge problem is the argument that the information required for rational economic planning is distributed among individual actors and thus unavoidably exists outside the knowledge of a central authority. Economist Friedrich Hayek observed that "practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation", while Leonid Hurwicz also noted that there is no incentive for people to share this information truthfully with a central authority.

Friedrich Hayek described this distributed local knowledge as such:

Because while incomplete this distributed knowledge is essential to economic planning, its necessity is cited as evidence in support of the argument that economic planning must be performed in a similarly distributed fashion by individual actors. In other words, economic planning by a central actor (e.g. a government bureaucracy or a central bank) necessarily lacks this information because, as Hayek observed, statistical aggregates cannot accurately account for the universe of local knowledge:

As such, the local knowledge problem is a microeconomic counterargument to macroeconomic arguments that favor central planning and regulation of economic activity.

• Civic crowdfunding
• Dispersed knowledge
• Tax choice

• Alejandro Agafonow (2012). "The Austrian Dehomogenization Debate, or the Possibility of a Hayekian Planner". Review of Political Economy. 24: 2.