INVESTMENT
101
insight of the literature on
ASYMMETRIC
INFORMATION
. This can cause the cost of
internal finance to differ substantially from external finance, and makes the
availability of finance a constraint on investment. Up to now we have pro-
ceeded as though decision makers in firms and external suppliers of funds
have the same information about the firm’s investment opportunities. How-
ever, asymmetric information can generate cost disadvantages of external
finance for some firms.
The arguments for this view draw on an idea called the “
LEMONS
PROBLEM
”
that was first expounded on by George Akerlof.
16
The essence of ...
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