The Equilibrium Effects of Information Deletion: Evidence from Consumer Credit Markets
60 Pages Posted: 1 Oct 2018
Date Written: September 2018
This paper exploits a large-scale natural experiment to study the equilibrium effects of information restrictions in credit markets. In 2012, Chilean credit bureaus were forced to stop reporting defaults for 2.8 million individuals (21% of the adult population). We show that the effects of information deletion on aggregate borrowing and total surplus are theoretically ambiguous and depend on the pre-deletion demand and cost curves for defaulters and non-defaulters. Using panel data on the universe of bank borrowers in Chile combined with the deleted registry information, we implement machine learning techniques to measure changes in lenders' cost predictions following deletion. Deletion reduces (raises) predicted costs the most for poorer defaulters (non-defaulters) with limited borrowing histories. Using a difference-in-differences design, we find that individuals exposed to increases in predicted costs reduce borrowing by 6.4%, while those exposed to decreases raise borrowing by 11.8% following the deletion, for a 3.5% aggregate drop in borrowing. Using the difference-in-difference estimates as inputs into the theoretical framework, we find evidence that deletion reduced aggregate welfare under a variety of assumptions about lenders' pricing strategies.
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