IDEAS home Printed from
   My bibliography  Save this paper

The Design of Credit Information Systems


  • Bhaskar, Venkataraman
  • Thomas, Caroline


We examine the performance of large credit markets subject to borrower moral hazard, when information on the past behavior of borrowers is subject to bounded memory constraints. Borrowers who default should be temporarily excluded in order to efficiently incentivize repayment. However, lenders have an incentive to lend to borrowers who are near the end of their exclusion period, undermining this punishment. With perfect information on past behavior, no lending can be sustained, independent of the length of memory. Coarse information about borrowers' histories improves outcomes, by mitigating lender moral hazard. By pooling recent defaulters with those who defaulted further in the past, coarse information induces borrower adverse selection. This disciplines lenders, who are now unable to target loans towards those defaulters who are least likely to offend again. Paradoxically, efficiency can be improved by non-monotonic information structures that pool non-defaulters and multiple offenders. Equilibria where defaulters get a loan with positive probability can also improve efficiency, by raising the proportion of likely re-offenders in the pool of recent defaulters.

Suggested Citation

  • Bhaskar, Venkataraman & Thomas, Caroline, 2017. "The Design of Credit Information Systems," CEPR Discussion Papers 11849, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11849

    Download full text from publisher

    File URL:
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Sergei Kovbasyuk & Giancarlo Spagnolo, 2016. "Memory and Markets," EIEF Working Papers Series 1606, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2017.

    More about this item


    credit markets; information design; one-sided moral hazard; repeated games with randomly matched players.;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:11849. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.