Identifying Information Asymmetries: New Methods and Evidence from a Randomized Field Experiment
AbstractThis paper estimates the prevalence of asymmetric information in a consumer credit market using a field experiment of our design. A major South African lender issued 60,000 direct mail offers where the interest rate was randomized along two different dimensions â€” an initial â€œoffer rateâ€ on the direct mail solicitation, and a weakly lesser â€œcontract rateâ€ the applicant received after responding to the solicitation and agreeing to the initial offer rate. These two dimensions of random variation in interest rates, combined with the large sample (including 6,200 accepted offers) and complete knowledge of the Lenderâ€™s information set, will enable us to identify the prevalence and impacts of specific types of private information. Specifically, our setup distinguishes adverse selection from moral hazard/repayment burden effects on repayment and profitability, and thereby generates unique empirical evidence on the sources and importance (or lack thereof) of asymmetric information.
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 558.
Date of creation: 11 Aug 2004
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adverse selection; moral hazard; field experiment;
Find related papers by JEL classification:
- C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-30 (All new papers)
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