Santiago Truffa

Ph.D Business Economics

Estimating the Information Component in Switching Costs: A Structural Approach

Abstract – 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 pol-
icy 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 long-
term 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

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