This paper studies how signaling can facilitate the functioning of a market with classical adverse selection problems. Using data from Prosper.com, an online credit market where loans are funded through auctions, we provide evidence that reserve interest rates that borrowers post can serve as a...

We study how signaling affects equilibrium outcomes and welfare in an online credit market using detailed data on loan characteristics and borrower repayment. We build and estimate an equilibrium model in which a borrower may signal her default risk through the reserve interest rate. Comparing a...

We study how signaling affects equilibrium outcomes and welfare in markets with adverse selection. Using data from an online credit market, we estimate a model of borrowers and lenders where low reserve interest rates can signal low default risk. Comparing a market with and without signaling...