We study a dynamic setting in which stochastic information about the value of a privately-informed seller’s asset is gradually revealed to a market of buyers. We characterize the unique equilibrium in a continuous-time framework. The equilibrium involves periods of no trade or market failure. The no-trade period ends in one of two ways: either enough good news arrives restoring confidence and m...

We study how a government should optimally disclose information about banks’ assets during a financial crisis. The government can also use its resources to stop runs and unfreeze credit markets. Disclosure improves welfare by reducing adverse selection, but it can also create runs on weak banks. A credible fiscal backstop mitigates these risks and allows the government to pursue efficient but r...

In markets with adverse selection, when average quality is low and frictions are small decentralized trade produces a greater surplus than predicted by the competitive model: under decentralized trade some high-quality units of the good trade whereas, due to the “lemons problem,” only low-quality units trade in the competitive equilibrium. This suggests a reason why these markets are often dece...

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Open innovation platforms (web sites where crowds post ideas in a shared space) enable us to elicit huge volumes of potentially valuable solutions for problems we care about, but identifying the best ideas in these collections can be prohibitively expensive and time-consuming. This paper presents an approach, called the "bag of lemons", which enables crowd to filter ideas with accuracy superior...

We propose that the market for international acquisitions may be subject to a double “lemons problem”: because of information asymmetries firms acquired by international buyers tend to be poor performers compared to firms acquired by domestic buyers that again tend to perform worse than firms that are not acquired. We find support for these propositions by comparing international to domestic ac...

The literature on R&D contests implicitly assumes that contestants submit their innovation regardless of its value. This ignores a potential adverse selection problem. The present paper analyzes the procurement of innovations when the procurer cannot commit to never bargain with innovators who bypass the contest. We compare fixed-prize tournaments with and without entry fees, and optimal scorin...

This paper provides empirical evidence on the welfare losses associated with asymmetric information about product quality in a competitive market. When consumers cannot observe characteristics at time of purchase, atomistic producers have no incentive to supply costly quality. We compare wine prices across administrative districts around enactment historic regulations aimed certifying more than...

Citrus fruits of industrial interest include lemons, oranges, mandarins, grapefruits, clementines, limes and other commercially minor ones. A huge amount agricultural waste is generated yearly all over the globe by citrus fruit industry. The wastes from these productions may be, however, great nutritional economic value for their chemical composition, due to abundance diverse functional compoun...