Lemons Markets and the Transmission of Aggregate Shocks
AbstractI 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.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 103 (2013)
Issue (Month): 4 (June)
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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