Bankruptcy: Is It Enough to Forgive or Must We Also Forget?
AbstractIn many countries, lenders are restricted in their access to information about borrowers' past defaults. We study this provision in a model of repeated borrowing and lending with moral hazard and adverse selection. We analyze its effects on borrowers' incentives and credit access, and identify conditions under which it is welfare improving. Our model's predictions are consistent with the evidence on the impact of these credit bureau regulations on borrowers' and lenders' behavior as well as on credit provision. We also show that "forgetting" must be the outcome of a regulatory intervention. (JEL D14, D82, G33, K35, L26)
CitationElul, Ronel, and Piero Gottardi. 2015. "Bankruptcy: Is It Enough to Forgive or Must We Also Forget?" American Economic Journal: Microeconomics, 7 (4): 294-338. DOI: 10.1257/mic.20130139
- D14 Household Saving; Personal Finance
- D82 Asymmetric and Private Information; Mechanism Design
- G33 Bankruptcy; Liquidation
- K35 Personal Bankruptcy Law
- L26 Entrepreneurship