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Measuring the Welfare Cost of Asymmetric Information in Consumer Credit Markets / Anthony A. DeFusco, Huan Tang, Constantine Yannelis.
- Format:
- Book
- Author/Creator:
- DeFusco, Anthony A.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w29270.
- NBER working paper series no. w29270
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2021.
- Summary:
- Information asymmetries are known in theory to lead to inefficiently low credit provision, yet empirical estimates of the resulting welfare losses are scarce. This paper leverages a randomized experiment conducted by a large fintech lender to estimate welfare losses arising from asymmetric information in the market for online consumer credit. Building on methods from the insurance literature, we show how exogenous variation in interest rates can be used to estimate borrower demand and lender cost curves and recover implied welfare losses. While asymmetric information generates large equilibrium price distortions, we find only small overall welfare losses, particularly for high-credit-score borrowers.
- Notes:
- Print version record
- September 2021.
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