Adverse selection is commonly used to explain inefficiencies in specific markets. In this paper,we incorporate an informational asymmetry into a decentralized dynamic economy and study its implications for aggregate and sector level dynamics. We show that it leads to slow moving capital, lagged...

We analyze the effect of innovation on asset prices in a tractable, general equilibrium framework with heterogeneous households and firms. We argue that financial market participants are unlikely to capture all the economic rents resulting from innovative activity, even when they own shares in...