Information Sharing in Credit Markets
AbstractWe present a model with adverse selection where information sharing between lenders arises endogenously. Lenders' incentives to share information about borrowers are positively related to the mobility and heterogeneity of borrowers, to the size of the credit market and to advances in information technology; on the other hand, such incentives are reduced by the fear of competition from potential entrants. In addition, information sharing increases the volume of lending when adverse selection is so severe that safe borrowers drop out of the market. These predictions are supported by international and historical evidence in the context of the consumer credit market. Information sharing is widespread in countries, such as Japan, the United Kingdom and the United States, where the geographical mobility of households is high and the consumer credit market is deep; while in countries with low mobility and thin consumer credit markets, e.g. Belgium and Italy, information sharing is minimal. The same predictions are also supported by US historical data.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 579.
Date of creation: Oct 1991
Date of revision:
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Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G29 - Financial Economics - - Financial Institutions and Services - - - Other
- N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
- P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
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