The Emergence of Information Sharing in Credit Markets

Martin Brown and Christian Zehnder

Issue
2008-01

Pages
53

JEL classification
D82, G21, G28

Keywords
information sharing, credit, competition, asymmetric information

Year
2008

We examine how asymmetric information and competition in the credit market affect voluntary information sharing between lenders. We study an experimental credit market in which information sharing can help lenders to distinguish good borrowers from bad ones, ecause borrowers may exogenously switch locations. Lenders are, however, engaged in spatial competition, and thus may lose market power by sharing information with competitors. Our results suggest that asymmetric information in the credit market increases the frequency of information sharing between lenders significantly. Competition between lenders reduces information sharing, but the impact of competition seems to be only of second order importance.