Real Effects of Search Frictions in Consumer Credit Markets

Bronson Argyle, Taylor Nadauld and Christopher Palmer

The Review of Financial Studies, 2023, vol. 36, issue 7, 2685-2720

Abstract: We show that search frictions in credit markets affect accepted interest rates and loan sizes and distort consumption. Using data on car loan applications and originations not intermediated by car dealers, we isolate quasi-exogenous variation in both the costs and benefits to searching for credit. After identifying lender-specific policies that price risk discontinuously, we study the differential response to offered interest rates by borrowers who face high and low search costs. High-search-cost borrowers are 10$\%$ more likely to accept loan offers with higher markups, consequently originating smaller loans and purchasing older and less expensive cars than lower-search-cost borrowers.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: D12 D83 E43 G21 L11 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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