Advanced Search
MyIDEAS: Login to save this article or follow this journal

Lemons Markets and the Transmission of Aggregate Shocks

Contents:

Author Info

  • Pablo Kurlat
Registered author(s):

    Abstract

    I study a dynamic economy featuring adverse selection in asset markets. Borrowing-constrained entrepreneurs sell past projects to finance new investment, but asymmetric information creates a lemons problem. I show that this friction is equivalent to a tax on financial transactions. The implicit tax rate responds to aggregate shocks, generating amplification in the response of investment and cyclical variation in liquidity.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.4.1463
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 103 (2013)
    Issue (Month): 4 (June)
    Pages: 1463-89

    as in new window
    Handle: RePEc:aea:aecrev:v:103:y:2013:i:4:p:1463-89

    Note: DOI: 10.1257/aer.103.4.1463
    Contact details of provider:
    Email:
    Web page: https://www.aeaweb.org/aer/
    More information through EDIRC

    Order Information:
    Web: https://www.aeaweb.org/subscribe.html

    Related research

    Keywords:

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    3. Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, vol. 80(2), pages 382-88, May.
    4. Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," STICERD - Theoretical Economics Paper Series /1991/233, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. I. Hendel & A. Lizzeri & M. Siniscalchi, 2002. "Efficient Sorting in a Dynamic Adverse-Selection Model," Princeton Economic Theory Working Papers 9879581e6de5e61fcfb0cd82b, David K. Levine.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    7. Bigelow, John P., 1990. "Efficiency and adverse selection," Journal of Economic Theory, Elsevier, vol. 52(2), pages 380-405, December.
    8. Boyan Jovanovic & Serguey Braguinsky, 2002. "Bidder Discounts and Target Premia in Takeovers," NBER Working Papers 9009, National Bureau of Economic Research, Inc.
    9. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
    10. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
    11. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    12. Bengt Holmstrom & Jean Tirole, 1996. "Private and Public Supply of Liquidity," NBER Working Papers 5817, National Bureau of Economic Research, Inc.
    13. Gordon M Phillips & Vojislav Maksimovic, 1999. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and are there Efficiency Gains?," Working Papers 99-12, Center for Economic Studies, U.S. Census Bureau.
    14. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
    15. Brendan Daley & Brett Green, 2012. "Waiting for News in the Market for Lemons," Econometrica, Econometric Society, vol. 80(4), pages 1433-1504, 07.
    16. Gavazza, Alessandro, 2010. "The role of trading frictions in real asset markets," MPRA Paper 25781, University Library of Munich, Germany.
    17. New York University & Saki Bigio, 2010. "Endogenous Liquidity and the Business Cycle," 2010 Meeting Papers 672, Society for Economic Dynamics.
    18. House, Christopher L., 2006. "Adverse selection and the financial accelerator," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1117-1134, September.
    19. Ivashina, Victoria & Scharfstein, David, 2010. "Bank lending during the financial crisis of 2008," Journal of Financial Economics, Elsevier, vol. 97(3), pages 319-338, September.
    20. Andrea L. Eisfeldt, 2004. "Endogenous Liquidity in Asset Markets," Journal of Finance, American Finance Association, vol. 59(1), pages 1-30, 02.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Moore, John, 2013. "Contagious Illiquidity I: Contagion through Time," SIRE Discussion Papers 2013-73, Scottish Institute for Research in Economics (SIRE).
    2. Grenadier, Steven R. & Malenko, Andrey & Strebulaev, Ilya A., 2014. "Investment busts, reputation, and the temptation to blend in with the crowd," Journal of Financial Economics, Elsevier, vol. 111(1), pages 137-157.
    3. Wei Cui & Sören Radde, 2014. "Search-Based Endogenous Illiquidity and the Macroeconomy," Discussion Papers of DIW Berlin 1367, DIW Berlin, German Institute for Economic Research.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:103:y:2013:i:4:p:1463-89. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.