Publication Type
Working Paper
Version
publishedVersion
Publication Date
8-2015
Abstract
We study how signaling affects equilibrium outcomes and welfare in markets with adverse selection. Using data from an online credit market, we estimate a model of borrowers and lenders where low reserve interest rates can signal low default risk. Comparing a market with and without signaling relative to the benchmark case with no asymmetric information, we find that adverse selection destroys as much as 16% of total surplus, up to 95% of which can be restored with signaling. We also find the credit supply curves to be backward-bending for some markets, consistent with the prediction of Stiglitz and Weiss (1981).
Keywords
Signaling, Adverse Selection, Credit Markets, Structural Model
Discipline
Economics | Finance
Research Areas
Macroeconomics
First Page
1
Last Page
54
Citation
KAWAI, Kei; ONISHI, Ken; and UETAKE, Kosuke.
Signaling in Online Credit Markets. (2015). 1-54.
Available at: https://ink.library.smu.edu.sg/soe_research/1733
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://ssrn.com/abstract=2188693