Illiquid Lemon Markets and the Macroeconomy

Aimé Bierdel, Andres Drenik, Juan Herreño and Pablo Ottonello

Journal of Political Economy, 2026, vol. 134, issue 9, 2824 - 2870

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.

Date: 2026
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Working Paper: Illiquid Lemon Markets and the Macroeconomy (2023)
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