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

37 Pages Posted: 24 Oct 2018 Last revised: 29 Nov 2019

See all articles by Andres Liberman

Andres Liberman

Betterfly

Christopher Neilson

New York University (NYU) - Leonard N. Stern School of Business; Princeton University - Princeton 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: April 1, 2019

Abstract

This paper uses a large-scale natural experiment to study the equilibrium effects of restricting information provision in credit markets. In 2012, Chilean credit bureaus were forced to stop reporting defaults for 21% of the adult population. Using panel data on the universe of bank transactions in Chile combined with the deleted registry information, we implement machine learning techniques to measure changes in the predictions lenders can make about default rates following deletion. Using a difference-in-differences design, we show that individuals exposed to increases in predicted default reduce borrowing by 6.4% following deletion, while those exposed to decreases raise borrowing by 11.8%. In aggregate, deletion reduces borrowing by 3.5%. Taking the difference-in-difference estimates as inputs into a model of borrowing under adverse selection, we find that deletion reduces surplus under a variety of assumptions about lenders’ pricing strategies.

Keywords: Information Asymmetry, Consumer Credit

JEL Classification: G20, D14, D82

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 (April 1, 2019). Chicago Booth Research Paper No. 19-15, Fama-Miller Working Paper, Available at SSRN: https://ssrn.com/abstract=3258697 or http://dx.doi.org/10.2139/ssrn.3258697

Andres Liberman (Contact Author)

Betterfly ( email )

Santiago
Chile

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 - Princeton 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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