NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Incentive Effect of Scores: Randomized Evidence from Credit Committees

Daniel Paravisini, Antoinette Schoar

NBER Working Paper No. 19303
Issued in August 2013
NBER Program(s):   CF   DEV   IO   PR

We design a randomized controlled trial to evaluate the adoption of credit scoring with a bank that uses soft information in small businesses lending. We find that credit scores improve the productivity of credit committees, reduce managerial involvement in the loan approval process, and increase the profitability of lending. Credit committee members' effort and output also increase when they anticipate the score becoming available, indicating that scores improve incentives to use existing information. Our results imply that credit scores improve the efficiency and decentralize decision-making in loan production, which has implications for the optimal organization of banks.

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This paper was revised on July 27, 2015

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19303

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