Lemons Markets and the Transmission of Aggregate Shocks

Pablo Kurlat ()

American Economic Review, 2013, vol. 103, issue 4, 1463-89

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.

JEL-codes: D82 D92 E32 E44 G31 L15 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.4.1463
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Citations: View citations in EconPapers (95)

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