We develop a theoretical model that explains the primary empirical results emanating from a multi-year study of the impact of credit bureaus in Guatemala. Our theory derives “screening” and “incentive” effects of credit information systems that mitigate problems of adverse selection and moral hazard in credit markets. We also derive a “credit expansion” effect in which borrowers with clean credit records receive larger and more favorable equilibrium loan contracts. The credit expansion effect increases default rates, partially counteracting the first two effects. We create a simulation model that allows us to examine the relative magnitudes of these effects in relation to the order in which they occur.
McIntosh, Craig and Wydick, Bruce, "What Do Credit Bureaus Do? Understanding Screening, Incentive, and Credit Expansion Effects" (2009). Economics. 3.