Download or read book Asymmetric Information in Dynamic Contract Settings written by Sumit Agarwal and published by . This book was released on 2007 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze more than 108,000 home equity loans and lines of credits to study the role of information asymmetry in a credit market where borrowers face a menu of contract options and a lender uses a counteroffer to further mitigate contract frictions. Our results reveal that a less credit-worthy applicant is more likely to select a credit contract that requires less collateral. Further analysis on borrower repayment behavior ex post indicates that the lender may face adverse selection due to private information, controlling for observable risk attributes. We also find that systematic screening ex ante by a lender to mitigate contract frictions can effectively reduce overall credit losses ex post.