Economies of Scope in Consumer Credit
Paris December 2015 Finance Meeting EUROFIDAI - AFFI
42 Pages Posted: 12 Dec 2014 Last revised: 12 Jun 2018
Date Written: February 15, 2018
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: Suggested Citation