Asymmetric Information and Deadweight Loss in Consumer Credit

Asymmetric information between lenders and borrowers of consumer credit creates deadweight loss, as the lack of information can lead to suboptimal interest rates offered to households. In 2019, the Brazilian Central Bank (BCB) introduced legislation that required credit reports be kept on a centralised database on an “opt-out” basis rather than “opt-in” by consumers, thereby reducing asymmetric information in Brazilian consumer credit markets. Using detailed loan-level data from the BCB  and extending a novel technique developed by Yannelis et al. (2022), this project aims to estimate the welfare gains from this reduction in asymmetric information under imperfect competition.

First Update