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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.


Presented at the 2007 Northeast Universities Development Consortium Conference, Harvard University, October 26-27, the 2008 Pacific Conference for Development Economics, and the University of California at Santa Barbara, May 2007. Summary presentation of results under the title "Competition, Microfinance, and Information" FSR Forum: Scientific magazine of the University of Rotterdam, Netherlands (July 2012), vol. 14, no. 4, pp.24-29.

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