Voluntary trade between individuals will result in Pareto improvements as long as each individual can find out about the possibility of such a trade and knows what they will be getting from the trade. In many markets, however, imperfect information exists so that some individuals will not know that such trades are available or do have incorrect expectations of the characteristics of the product they are acquiring. In the case of the labor market, workers may not always know all of the risks and characteristics of jobs that they accept. They also do not have perfect information about all of the potential employment opportunities that may be available. On the other side of the market, firms do not have perfect information concerning the ability, motivation, collegiality, and other characteristics of potential workers. Because of this imperfect information, some employment choices will result in decisions that are not Pareto improvements.
Government often steps in to correct for this type of market failure by issuing regulations or providing information. OSHA requirements designed to improve worker safety are partly justified on this basis. State employment agencies that provide listings of job opportunities are another example of an attempt to correct for imperfect information.
