Assume that a particular state has decided to outlaw the sharing of individuals' credit histories as an illegal invasion of privacy. As a result of this action we would expect the:
A) cost of borrowing money to rise.
B) number of loans to unworthy credit risks to rise.
C) problems of asymmetric information to become more severe.
D) all of the above
E) none of the above

Question

Quizplus · Accepted Answer

When lenders cannot access credit histories, they face higher uncertainty about borrowers' ability to repay loans. This leads to higher interest rates to compensate for increased risk (A), more loans to individuals who may not be able to repay them (B), and overall, a worsening of asymmetric information problems (C), where lenders have less information than borrowers about the borrowers' financial situation.

Assume That a Particular State Has Decided to Outlaw the Sharing