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Lunch Seminar: Andrés Liberman - NYU Stern School of Business
Thursday 13 July 2017, 01:00pm - 02:00pm

Equilibrium Effects of Asymmetric Information: Evidence from a Natural Experiment in Consumer Credit (with Christopher Neilson, Luis Opazo and Seth Zimmerman)

 

Abstract:
We investigate the equilibrium effects of information asymmetries in credit markets in the context of a large-scale policy change that induced an information asymmetry between lenders and consumer credit borrowers in Chile. In 2012, Chilean credit bureaus were forced to stop reporting past defaults for 2.8 million individuals with relatively low default amounts. These individuals made up 21% of the country’s adult population and approximately 67% of borrowers in default. Using panel data of the universe of bank borrowers in Chile, we show that the policy change had both direct effects on the beneficiaries and equilibrium effects on the broader credit market. We first exploit a discontinuity in eligibility based on default amount to show that borrowing rises for the beneficiaries of deletion relative to non-beneficiaries following policy implementation. However, consumer borrowing falls by approximately 5% for non-beneficiaries in the quarter following policy implementation, while the median interest rate for small loans also rises by 5 percentage points from a base of 27%. Equilibrium responses are larger for individuals who are pooled with relatively more past defaulters based on demographic characteristics observable to lenders.

   
   
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