Information Asymmetries in Consumer Credit Markets: Evidence from Payday Lending

Will Dobbie and Paige Marta Skiba

American Economic Journal: Applied Economics, 2013, vol. 5, issue 4, 256-82

Abstract: Information asymmetries are prominent in theory but difficult to estimate. This paper exploits discontinuities in loan eligibility to test for moral hazard and adverse selection in the payday loan market. Regression discontinuity and regression kink approaches suggest that payday borrowers are less likely to default on larger loans. A $50 larger payday loan leads to a 17 to 33 percent drop in the probability of default. Conversely, there is economically and statistically significant adverse selection into larger payday loans when loan eligibility is held constant. Payday borrowers who choose a $50 larger loan are 16 to 47 percent more likely to default.

JEL-codes: D14 D82 G21 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/app.5.4.256
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Citations: View citations in EconPapers (52)

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