The Incentive Effect of IT: Randomized Evidence from Credit Committees

We distinguish the impact of information technology adoption on information processing costs and agency costs by conducting a randomised control trial with a bank that adopts a new credit-scoring tool. The availability of scores significantly increases credit committees' effort and output on difficult-to-evaluate loan applications. Output increases almost as much in a treatment where the committee receives no new information, but anticipates the score becoming available after it evaluates a application, which suggests that scores reduce incentive problems inside the credit committee. We also show that scores improve efficiency by decentralising decision-making and equalizing marginal returns across loans. 

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