A project led by José Ignacio Cuesta at Stanford University, and co-directed by Gaston Illanes and Vivek Bhattacharya at Northwestern University, seeks to examine and understand the source of refinancing friction with respect to mortgage financing in Chile.

The team estimates that 90% of borrowers in Chile would benefit from refinancing, with average gains equivalent to around three monthly incomes. Yet, less than 2% of borrowers do so. This research seeks to unpack the source of the frictions and quantify how alleviating them with simple information treatments may promote competition and influence consumer outcomes. Comparing informational interventions to more heavy-handed market interventions will shed light on whether direct regulation remains beneficial once informational frictions have been corrected.

The project involves three studies combining large-scale field experiments and structural modeling.

The first is a field experiment conducted in partnership with a large Chilean bank, where 250,000 mortgage borrowers are randomized into one of five light-touch email interventions. Each targets a distinct behavioral friction: one explains legislation that simplifies switching banks (targeting switching costs), another provides personalized estimates of savings from refinancing (targeting biased beliefs), while others address limited attention, complexity aversion, and default inertia. Researchers will assess how these interventions affect borrower search and refinancing behavior using administrative data.

The second study builds on Phase 1 to estimate a model of demand and supply in the refinancing market, assessing how borrower decisions and bank responses are shaped by information frictions.

The third phase examines whether bank competition incentivizes lenders to remove information frictions, and whether government interventions improve or worsen market conditions. Using survey data and modeling, researchers will study how borrowers and banks share refinancing risks and make refinancing decisions, examining alternative contract designs (e.g., adjustable rate contracts, automatic refinancing, financing bans) to evaluate whether innovation or regulation better addresses refinancing frictions.