American Economic Review Vol. 103 No. 4 2013
Lemons Markets and the Transmission of Aggregate Shocks
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.
- DOI
- 10.1257/aer.103.4.1463
- Volume
- 103
- Issue
- 4
- Pages
- 1463-1489
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref