Analysis of adverse selection in the consumer debt market in Chile and counterfactual policy outcomes
These codes help to replicate the empirical analysis of the article “Adverse selection, loan access and default behavior in the Chilean consumer debt market”, Financial Innovation, 2022, forthcoming. Why do households use different loan types? Which factors cause borrowers to default? Using a comprehensive survey dataset from Chile, I estimate a partial information model of consumer debt access, lender choice, loan amounts and default. The model consists of a first stage multinomial logit that explains the choice across 5 loan types, plus the options of no access to debt due to credit constraints and a no wish for consumer debt. At a second and third stages the model assumes a log-linear regression of the debt amount and a logit regression of the default behavior, accounting for the loan type selection probability. Identification is obtained by using factors measured at a different time periods for the default and the loan type choices.