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Bankruptcy: is it enough to forgive or must we also forget?

  • Ronel Elul
  • Piero Gottardi

In many countries, lenders are restricted in their access to information about borrowers' past defaults. The authors study this provision in a model of repeated borrowing and lending with moral hazard and adverse selection. They analyze its effects on borrowers' incentives and access to credit, and identify conditions under which it is optimal. The authors argue that “forgetting” must be the outcome of a regulatory intervention by the government. Their model's predictions are consistent with the cross-country relationship between credit bureau regulations and the provision of credit, as well as the evidence on the impact of these regulations on borrowers' and lenders' behavior.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 11-14.

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Date of creation: 2011
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Handle: RePEc:fip:fedpwp:11-14
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  14. 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.
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  17. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September.
  18. Rafael Rob & Arthur Fishman, 2005. "Is Bigger Better? Customer Base Expansion through Word-of-Mouth Reputation," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1146-1175, October.
  19. Berkovitch, Elazar & Israel, Ronen & Zender, Jaime F., 1998. "The Design of Bankruptcy Law: A Case for Management Bias in Bankruptcy Reorganizations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(04), pages 441-464, December.
  20. Philip Bond & Arvind Krishnamurthy, 2004. "Regulating Exclusion from Financial Markets," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 681-707.
  21. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July.
  22. Ronel Elul & Narayanan Subramanian, 2002. "Forum-Shopping and Personal Bankruptcy," Journal of Financial Services Research, Springer;Western Finance Association, vol. 21(3), pages 233-255, June.
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