INFORMATION SHARING IN CREDIT MARKETS

We present a model with adverse selection where information sharing be tween lenders arises endogenously. Lenders' incentives to share inform ation about borrowers are positively related to the mobility and heter ogeneity of borrowers, to the size of the credit market, and to advanc es in information technology; such incentives are instead reduced by t he fear of competition from potential entrants. In addition, informati on sharing increases the volume of lending when adverse selection is s o severe that safe borrowers drop out of the market. These predictions are supported by international and historical evidence in the context of the consumer credit market.