Carrot or Stick? Evidence from a Pair of Natural Field Experiments Testing Lender Information Sharing Hypotheses
54 Pages Posted: 6 Jun 2018 Last revised: 15 Jun 2018
Date Written: June 15, 2018
We conducted a pair of natural field experiments on an online lending platform in China to examine the causal effect of information sharing among lenders on borrower adverse selection and moral hazard problems. Two features highlight our experiments: 1) both experiments were conducted after loan approvals; 2) we altered the timing of borrowers’ awareness of credit reporting. We find information sharing affects both take-up and default decisions significantly—while information sharing substantially mitigated moral hazard, reducing the default likelihood of new borrowers by 5.66%, adverse selection slightly deteriorated, likely driven by new borrowers’ eagerness to establish a credit history.
Keywords: Adverse Selection, Moral Hazard, Fintech, P2P, Lender Information Sharing
JEL Classification: G10, G21, G23
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