Bankruptcy: Is It Enough to Forgive or Must We Also Forget?
Title: Bankruptcy: Is It Enough to Forgive or Must We Also Forget?
Publisher: European University Institute
Series/Report no.: EUI ECO; 2008/41
In 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 access to credit, and identify conditions under which it is optimal. We argue that “forgetting” must be the outcome of a regulatory intervention by the government. Our model’s predictions are consistent with the cross-country relationship between credit bureau regulations and provision of credit, as well as the evidence on the impact of these regulations on borrowers’ and lenders’ behavior.
Subject: Bankruptcy; Information; Incentives; Fresh Start; D86; G33; K35
Type of Access: openAccess