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Does information sharing reduce the role of collateral as a screening device?

  • Artashes Karapetyan


    (Norges Bank (Central Bank of Norway))

  • Bogdan Stacescu


    (BI Norwegian Business School,)

Information sharing and collateral reduce adverse selection costs, but are costly for lenders. When a bank learns more about the types of its rival's borrowers through information sharing (e.g., credit bureaus), it might seem that this information should substitute the role of collateral in screening their types. We instead show that information sharing may increase, rather than decrease, the role of collateral, which can be required in loans to high-risk borrowers in cases when it is not in the absence of information sharing. We extend to show that ex ante screening can substitute both collateral and information sharing.

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Paper provided by Norges Bank in its series Working Paper with number 2012/19.

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Length: 24 pages
Date of creation: 18 Dec 2012
Date of revision:
Handle: RePEc:bno:worpap:2012_19
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  1. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 205-36.
  2. Martin Brown & Christian Zehnder, 2008. "The Emergence of Information Sharing in Credit Markets," Working Papers 2008-01, Swiss National Bank.
  3. Jappelli, Tullio & Pagano, Marco, 1991. "Information Sharing in Credit Markets," CEPR Discussion Papers 579, C.E.P.R. Discussion Papers.
  4. Gehrig, Thomas & Stenbacka, Rune, 2007. "Information sharing and lending market competition with switching costs and poaching," European Economic Review, Elsevier, vol. 51(1), pages 77-99, January.
  5. Andrew Hertzberg & José María Liberti & Daniel Paravisini, 2011. "Public Information and Coordination: Evidence from a Credit Registry Expansion," Journal of Finance, American Finance Association, vol. 66(2), pages 379-412, 04.
  6. Shy, Oz, 2002. "A quick-and-easy method for estimating switching costs," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 71-87, January.
  7. Stango, Victor, 2002. "Pricing with Consumer Switching Costs: Evidence from the Credit Card Market," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 475-92, December.
  8. repec:cup:cbooks:9780521800952 is not listed on IDEAS
  9. repec:cup:cbooks:9780521805001 is not listed on IDEAS
  10. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
  11. Jimenez, Gabriel & Salas, Vicente & Saurina, Jesus, 2006. "Determinants of collateral," Journal of Financial Economics, Elsevier, vol. 81(2), pages 255-281, August.
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