Runs versus Lemons: Information Disclosure and Fiscal Capacity

Faria-e-Castro, M, Martinez, J and Philippon, T (2017) Runs versus Lemons: Information Disclosure and Fiscal Capacity. Review of Economic Studies, 84 (4). pp. 1683-1707. ISSN 0034-6527 OPEN ACCESS


We study the optimal use of disclosure and fiscal backstops during financial crises. Providing information can reduce adverse selection in credit markets, but negative disclosures can also trigger inefficient bank runs. In our model, governments are thus forced to choose between runs and lemons. A fiscal backstop mitigates the cost of runs and allows a government to pursue a high disclosure strategy. Our model explains why governments with strong fiscal positions are more likely to run informative stress tests, and, paradoxically, how they can end up spending less than governments that are more fiscally constrained.

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Item Type: Article
Subject Areas: Economics
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© 2017 Oxford University Press; Review of Economic Studies Ltd.
This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Economic Studies following peer review. The version of record: Miguel Faria-e-Castro, Joseba Martinez, Thomas Philippon, 'Runs versus Lemons: Information Disclosure and Fiscal Capacity', The Review of Economic Studies, Volume 84, Issue 4, October 2017, Pages 1683–1707, is available online at:

Date Deposited: 04 Feb 2019 11:29
Date of first compliant deposit: 04 Feb 2019
Subjects: Crises
Disclosure of financial information
Last Modified: 21 Jul 2024 01:37

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