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Limited credit records and market outcomes


  • Margherita Bottero

    () (Bank of Italy)

  • Giancarlo Spagnolo

    () (SITE � Stockholm School of Economics)


Credit registers collect, store and share information regarding borrowers� past and current credit relations. Interestingly, such data is typically erased from the public records after a number of years, in accordance with privacy protection laws, which aim at providing individuals with a fresh start from past events. In order to secure credit-worthy but unlucky borrowers with a new beginning, however, these provisions end up removing all of the public information, including that possibly still relevant for screening purposes. This paper assesses such trade-off, by studying the impact of limited records on borrowers� behavior and market outcomes in a stylized credit market for unsecured loans. In this setup, limited records endogenously give rise to beneficial reputation effects in the form of higher equilibrium effort, which alleviate, rather than worsen, the distortions caused by asymmetric information. Further, we demonstrate that when moral hazard is high, 1-period records can achieve higher welfare and lead to a lower default rate than records that show all, or nothing, of the past history.

Suggested Citation

  • Margherita Bottero & Giancarlo Spagnolo, 2013. "Limited credit records and market outcomes," Temi di discussione (Economic working papers) 903, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_903_13

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    References listed on IDEAS

    1. Porqueddu Mario & Venditti Fabrizio, 2014. "Do food commodity prices have asymmetric effects on euro-area inflation?," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 18(4), pages 1-25, September.
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    7. Jappelli, Tullio & Pagano, Marco, 2002. "Information sharing, lending and defaults: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2017-2045, October.
    8. Liu, Qingmin & Skrzypacz, Andrzej, 2009. "Limited Records and Reputation," Research Papers 2030, Stanford University, Graduate School of Business.
    9. 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.
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    More about this item


    privacy; data retention; credit registers; limited records;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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