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Sharing default information as a borrower discipline device

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Listed:
  • Padilla, A. Jorge
  • Pagano, Marco

Abstract

Creditors often share their information about their customers' credit record, directly or via information brokers such as credit bureaus and rating agencies. Besides helping them to spot bad risks, this informational exchange acts as a disciplinary device. If creditors are known to exchange data about defaults, borrowers must consider that default on a current lender would disrupt their credit rating with all the other lenders. This disciplinary effect of information sharing can reduce the average default rate and increase the efficiency of the credit market, and it invariably sharpens competition between banks. But more detailed and extensive information sharing is not necessarily better: we show that the efficiency gains obtained obtained by pooling only data about past defaults can exceed those entailed by sharing all the information possesed by lenders.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Padilla, A. Jorge & Pagano, Marco, 2000. "Sharing default information as a borrower discipline device," European Economic Review, Elsevier, vol. 44(10), pages 1951-1980, December.
    • Handle: RePEc:eee:eecrev:v:44:y:2000:i:10:p:1951-1980
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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