Bankruptcy: Is it Enough to Forgive or Must We Also Forget?

47 Pages Posted: 4 Apr 2011

See all articles by Ronel Elul

Ronel Elul

Federal Reserve Bank of Philadelphia

Piero Gottardi

European University Institute - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: November 9, 2010

Abstract

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.

Keywords: Bankruptcy, Information, Incentives, Fresh Start

JEL Classification: D86, G33, K35

Suggested Citation

Elul, Ronel and Gottardi, Piero, Bankruptcy: Is it Enough to Forgive or Must We Also Forget? (November 9, 2010). FRB of Philadelphia Working Paper No. 11-14, Available at SSRN: https://ssrn.com/abstract=1802599 or http://dx.doi.org/10.2139/ssrn.1802599

Ronel Elul (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Piero Gottardi

European University Institute - Department of Economics ( email )

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Italy

Ca Foscari University of Venice - Dipartimento di Economia ( email )

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Italy
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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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