Information Asymmetry and Card Debt Crisis in Taiwan

Abstract

Following the Asian Financial Crisis, South Korea, Hong Kong, and Taiwan experienced card debt crisis in 2001, 2002 and 2005, respectively. Various countries have studied and tried to find the factors that lead to the card debt crisis, hoping that the proposed countermeasures can effectively solve the problem. However, these are only practical operations and observations. Therefore, through information asymmetry, this article constructs a model of card debt crisis from adverse selection and moral hazard, and theoretically provides the government or competent authority with a policy basis. This article employs document analysis, combined with qualitative and quantitative data, to test the research hypotheses. The verification result is supported regardless of hypotheses tests for adverse selection, or moral hazard and confirms that information asymmetry and market failure do exist in the Taiwan credit card market. The policy implication of the article is that the government or competent authority should stop the illusion of free market mechanism and have to be responsible for employing countermeasures to face the crisis. JEL classification numbers: G01,G21,G28. Keywords: Card debt crisis, Information asymmetry, Adverse selection, Moral hazard , Document analysis, Market failure.

Examining the Role of Government Intervention in Market Failure and Government Failure

“…In 2005, following South Korea and Hong Kong, Taiwan also experienced a card debt crisis, which not only triggered a local financial crisis but also had a serious impact on the society and the economy (Chang 2022). Faced with a tsunami-like credit card debt crisis, countries put forward countermeasures, hoping that the negative impact could be minimized.…”