Strategic Loan Defaults And Coordination: An Experimental Analysis

The authors used experimental methods to study whether the uncertainty about bank and about borrower fundamentals affect borrowers repayment behavior. They find that solvent borrowers are more likely to default strategically when stricter disclosure rules create common knowledge about bank weakness. They also find that borrowers are less likely to repay during economic downturns which are characterized by uncertainty regarding borrowers' financial health, regardless of disclosure rules.