Searching for Approval

• 成果类型: Article
• 署名作者: Agarwal, Sumit; Grigsby, John; Hortacsu, Ali; Matvos, Gregor; Seru, Amit; Yao, Vincent
• 署名单位: National University of Singapore; National University of Singapore; Princeton University; National Bureau of Economic Research; University of Chicago; Northwestern University; Stanford University; University System of Georgia; Georgia State University; University System of Georgia; Georgia State University
• 刊物名称: ECONOMETRICA
• ISSN/ISSBN: 0012-9682
• DOI: 10.3982/ECTA18554
• 发表日期: 2024
• 页码: 1195-1231
• 关键词: Adverse selection; price; DISCRIMINATION; COMPETITION; ECONOMICS; MARKETS

摘要

This paper theoretically and empirically studies the interaction of search and application approval in credit markets. Risky borrowers internalize the probability that their application is rejected and behave as if they had high search costs. Thus, overpayment may be a poor proxy for consumer sophistication since it partly represents rational search in response to rejections. Contrary to standard search models, our model implies (1) endogenous adverse selection through the search and application approval process, (2) a possibly non-monotone or non-decreasing relationship between search and realized interest, default, and application approval rates, and (3) search costs estimated from transaction prices alone are biased. We find support for the model's predictions using a unique data set detailing search behavior of mortgage borrowers. Estimating the model, we find that screening is informative and search is costly. Counterfactual analyses reveal that tightening lending standards and discrimination through application rejection both increase equilibrium interest rates. This increase in realized interest rates is in part due to strategic complementarity in bank rate setting.