The Equilibrium Effects of Information Deletion: Evidence from Consumer Credit Markets

60 Pages Posted: 1 Oct 2018

See all articles by Andres Liberman

Andres Liberman

New York University (NYU) - Department of Finance

Christopher Neilson

New York University (NYU) - Leonard N. Stern School of Business; Princeton University - Woodrow Wilson School of Public and International Affairs

Luis Opazo

Central Bank of Chile

Seth D. Zimmerman

Yale University; University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 2018

Abstract

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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Suggested Citation

Liberman, Andres and Neilson, Christopher and Opazo, Luis and Zimmerman, Seth D., The Equilibrium Effects of Information Deletion: Evidence from Consumer Credit Markets (September 2018). NBER Working Paper No. w25097. Available at SSRN: https://ssrn.com/abstract=3258194

Andres Liberman (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://pages.stern.nyu.edu/~aliberma/

Christopher Neilson

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

Luis Opazo

Central Bank of Chile ( email )

Publicaciones
Huerfanos 1185
Santiago
Chile

Seth D. Zimmerman

Yale University ( email )

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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