Canadian Economics Association (CEA) 2026, North American Summer Meeting of the Econometric Society (NASMES) 2026, European Association for Research in Industrial Economics (EARIE) 2026, Federal Reserve Bank of Philadelphia Conference on Auto Lending 2026

When borrowers have private information about their risk, safe borrowers can signal their type by borrowing less. Since the gain from a lower rate grows with the amount borrowed, borrowing less also weakens the incentive to search, softening competition among lenders. We measure the cost of asymmetric information, and of its interaction with search, in the Brazilian used-car loan market. Using the Central Bank of Brazil’s Credit Registry, which records repayment and the lenders each borrower contacted, we find that larger loans are riskier conditional on lenders’ information, and that borrowers who search more are riskier and pay higher rates. We estimate a model in which borrowers choose loan size and search effort given private search costs and a taste for borrowing correlated with risk. In the model, riskier borrowers are willing to accept higher rates, so they gain more from searching. We find that adverse selection has a small effect on average rates, as loan size reveals about half of borrowers’ private risk. But signaling is costly: safe borrowers take smaller loans than under public information, and therefore search less. Making types public would raise total surplus by 22 percent, but by only 1 percent with loan sizes held fixed. Holding search fixed, the gain would be about a fifth smaller.