Measuring the Equilibrium Effects of Asymmetric Information: Evidence from Consumer Credit Markets

We investigate the equilibrium effects of information asymmetries in credit markets in the context of a large-scale policy change that induced an information asymmetry between lenders and consumer credit borrowers in Chile. In 2012, Chilean credit bureaus were forced to stop reporting defaults for 2.8 million individuals with relatively low default amounts. These individuals made up 21% of the country's adult population and approximately 67% of borrowers in default. Using panel data of the universe of bank borrowers in Chile, we find that borrowing rises for the beneficiaries of deletion but falls for individuals who look indistinguishable from those whose information is deleted. Individual-level changes in borrowing are correlated with predicted changes in lending costs due to pooling. Our estimates suggest that the policy change caused a 4-5% net reduction in new borrowing over the following semester.