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Could dishonest banks be disciplined ?

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  • Nabi, Mahmoud Sami
  • Ben Souissi, Souraya

Abstract

Could a credit bureau incite banks to report correct information about their borrowers? We show that banks will choose the incorrect information sharing in the last period to increase their profits. Interestingly, however, it is shown that this strategy is optimal at the second period only if the proportion of successful projects is superior to 50%. In that case the Credit Bureau should enforce a sufficiently high penalty in order to incite banks to share information honestly. The penalty threshold that conditions the efficiency of the credit bureau’s role is endogenously derived.

Suggested Citation

  • Nabi, Mahmoud Sami & Ben Souissi, Souraya, 2011. "Could dishonest banks be disciplined ?," MPRA Paper 32010, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32010
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    References listed on IDEAS

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    More about this item

    Keywords

    Information sharing; penalty; incitation mechanism; credit bureau.;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • 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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