Working Paper: NBER ID: w30235
Authors: Mark Jansen; Fabian Nagel; Constantine Yannelis; Anthony Lee Zhang
Abstract: We show how to measure the welfare effects arising from increased data availability. When lenders have more data on prospective borrower costs, they can charge prices that are more aligned with these costs. This increases total social welfare and transfers surplus from borrowers to lenders. We show that the magnitudes of the welfare changes can be estimated using only quantity data and variation in prices. We apply the methodology on bankruptcy flag removals and find that removing prior bankruptcy information substantially increases the social surplus of previously bankrupt consumers, at the cost of a modest decrease in total social welfare. This suggests that flag removals have low efficiency costs for redistributing surplus to previously bankrupt borrowers. We show how the framework can be extended to incorporate adverse selection and imperfect competition.
Keywords: data availability; social welfare; credit markets; bankruptcy flag removal; consumer lending
JEL Codes: D6; G20; G21; G28; G5; H81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| data availability (C81) | total social welfare (D69) |
| data availability (C81) | lender pricing strategies (G21) |
| lender pricing strategies (G21) | total social welfare (D69) |
| removal of bankruptcy information (K35) | social surplus for previously bankrupt consumers (D14) |
| removal of bankruptcy information (K35) | total social welfare (D69) |