We introduce a simple adverse selection problem arising in credit markets into a standard textbook real business cycle model. There is a continuum of households and a continuum of anonymous producers who produce the final goods from intermediate goods. These producers do not have the resources...

We introduce a simple adverse selection problem arising in credit markets into a standard textbook real business cycle model. There is a continuum of households and a continuum of anonymous producers who produce the final goods from intermediate goods. These producers do not have the resources...

We build a model of endogenous credit cycles arising from the dynamics of adverse selection. Heterogeneous entrepreneurs trade productive assets in an anonymous market subject to financial frictions. Cream-skimming rent-seekers create lemon assets that can be traded. Lemon assets are...