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Bankruptcy: Is It Enough to Forgive or Must We Also Forget?

Author

Listed:
  • Ronel Elul
  • Piero Gottardi

Abstract

In many countries, lenders are restricted in their access to information about borrowers' past defaults. We study this provision in a model of repeated borrowing and lending with moral hazard and adverse selection. We analyze its effects on borrowers' incentives and credit access, and identify conditions under which it is welfare improving. Our model's predictions are consistent with the evidence on the impact of these credit bureau regulations on borrowers' and lenders' behavior as well as on credit provision. We also show that "forgetting" must be the outcome of a regulatory intervention. (JEL D14, D82, G33, K35, L26)

Suggested Citation

  • Ronel Elul & Piero Gottardi, 2015. "Bankruptcy: Is It Enough to Forgive or Must We Also Forget?," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 294-338, November.
    • Handle: RePEc:aea:aejmic:v:7:y:2015:i:4:p:294-338
    Note: DOI: 10.1257/mic.20130139
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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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