We exploit a unique natural experiment to structurally estimate the information frictions associated with switching costs. Specifically, we study a Chilean policy that simplified and standardized the presentation of loan characteristics in contracts and quotes. Using administrative data from the banking regulator, we exploit how this policy change affected the price-sensitivity in consumer decisions to identify the reduction in information frictions. We then incorporate this estimate into a dynamic structural model to explore the link between reduced informational frictions and welfare in longterm market equilibrium. We find that, after the policy, information frictions fell around 10 percent, which translated into an interest reduction of 180 basis points. We estimate a welfare improvement for consumers of 15 percent in the long run.
with Sheisha Kulkarni and Gonzalo Iberti