Economies of Scope in Consumer Credit

Paris December 2015 Finance Meeting EUROFIDAI - AFFI

42 Pages Posted: 12 Dec 2014 Last revised: 12 Jun 2018

Martin Thomas Hibbeln

University of Duisburg-Essen - Mercator School of Management

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE)

Piet Usselmann

University of Braunschweig - Institute of Technology, Department of Finance

Marc Gürtler

University of Braunschweig - Institute of Technology, Department of Finance

Date Written: February 15, 2018

Abstract

We investigate whether lenders can realize economies of scope by simultaneously obtaining private information from different accounts of the same borrower. Economies of scope exist if such information is complementary to each other. We focus on consumer credit, using 3.5 million observations from checking accounts and credit card accounts of the same individuals during 2007-2014. First, activity from both accounts contains useful information beyond credit scores, borrower characteristics and relationship characteristics. Second, checking accounts display warning indications earlier and more accurately than credit card accounts. Third, decision errors are lower when lenders consider cross-product information. The evidence suggests significant informational economies of scope that are important for the supply and allocation of credit.

Keywords: household finance, credit risk, asymmetric information, account activity, consumer bankruptcy

JEL Classification: G20, G21, D12, D14

Suggested Citation

Hibbeln, Martin Thomas and Norden, Lars and Usselmann, Piet and Gürtler, Marc, Economies of Scope in Consumer Credit (February 15, 2018). Paris December 2015 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2536930 or http://dx.doi.org/10.2139/ssrn.2536930

Martin Thomas Hibbeln (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany
+49 203 379-2830 (Phone)

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Rua Jornalista Orlando Dantas 30
Rio de Janeiro, 22231-010
Brazil
+552130832431 (Phone)

HOME PAGE: http://www.larsnorden.de

Piet Usselmann

University of Braunschweig - Institute of Technology, Department of Finance ( email )

Abt-Jerusalem-Str. 7
Braunschweig, 38106
Germany

Marc Gürtler

University of Braunschweig - Institute of Technology, Department of Finance ( email )

Abt-Jerusalem-Str. 7
Braunschweig, 38106
Germany

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