Measuring the welfare cost of asymmetric information in consumer credit markets

Anthony A. DeFusco*, Huan Tang, Constantine Yannelis

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Scopus citations


Information asymmetries are known in theory to lead to inefficiently low credit provision, yet empirical estimates of the resulting welfare losses are scarce. This paper leverages a randomized experiment conducted by a large fintech lender to estimate welfare losses arising from asymmetric information in the market for online consumer credit. Building on methods from the insurance literature, we show how exogenous variation in interest rates can be used to estimate borrower demand and lender cost curves and recover implied welfare losses. While asymmetric information generates large equilibrium price distortions, we find only small overall welfare losses, particularly for high-credit-score borrowers.

Original languageEnglish (US)
Pages (from-to)821-840
Number of pages20
JournalJournal of Financial Economics
Issue number3
StatePublished - Dec 2022


  • Asymmetric information
  • Consumer credit
  • Experiment
  • Fintech
  • Welfare

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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