We distinguish the impact of information technology adoption on information processing costs and agency costs by conducting a randomized control trial with a bank that adopts a new credit-scoring tool. The availability of scores significantly increases credit committees' effort and output on difficult- to-evaluate loan applications. Output increases almost as much in a treatment where the committee receives no new information, but anticipates the score becoming available after it evaluates an application, which suggests that scores reduce incentive problems inside the credit committee. We also show that scores improve efficiency by decentralizing decision-making and equalizing marginal returns across loans.
Policy implications
IT solutions that increase the ease with which principals can monitor agents may improve productivity and organizational design.
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Additional information
Reference
Paravisini, D., Schoar, A., 2013. 'The Incentive Effect of IT: Randomized Evidence from Credit Committees'. NBER Working Paper No. w19303.