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Illiquid Lemon Markets and the Macroeconomy

Author

Listed:
  • Aimé Bierdel
  • Andres Drenik
  • Juan Herreño
  • Pablo Ottonello

Abstract

We study the macroeconomic implications of asymmetric information in capital markets. We build a model in which heterogeneous capital is traded in illiquid markets, with sellers better informed about its quality than buyers. Asymmetric information distorts the terms of trade for sellers of high-quality capital, who list higher prices and accept lower trading probabilities to signal their type. Guided by the model, we measure these distortions from the relationship between listed prices and trading probabilities in a unique dataset of capital units. Combining this measurement with the model, we show that information asymmetries can play a quantitatively large role during crises, when they intensify.

Suggested Citation

  • Aimé Bierdel & Andres Drenik & Juan Herreño & Pablo Ottonello, 2026. "Illiquid Lemon Markets and the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 134(9), pages 2824-2870.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/742435
    DOI: 10.1086/742435
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    1. is not listed on IDEAS
    2. Mäkinen, Taneli & Palazzo, Francesco, 2024. "Adverse selection and search congestion in over-the-counter markets," Journal of Monetary Economics, Elsevier, vol. 146(C).

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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