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The Adverse Selection Effects of Net Worth and the Crash of Land Price --Welfare Effects of Demand and Supply Shocks under Asymmetric Information--

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  • Shin-ichi Fukuda
  • Ji Cong

Abstract

This paper investigates how the adverse selection effects of net worth will change the welfare effects of demand and supply shocks. In the economy, there exists asymmetric information in the financial market, under which an increase in the value of net worth may rule out good type of firms from the financial market. We show that in this type of economy, expansional shocks, which usually improves social welfare, may cause the crash of land price and deteriorate economic welfare. We also show that expansional government policies are not necessarily desirable and that the asset price (i.e., the price of land) canbe a good indicator for policymakings.

Suggested Citation

  • Shin-ichi Fukuda & Ji Cong, 1993. "The Adverse Selection Effects of Net Worth and the Crash of Land Price --Welfare Effects of Demand and Supply Shocks under Asymmetric Information--," Discussion Paper Series a278, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hituec:a278
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