Limited Credit Records and Market Outcomes

59 Pages Posted: 3 May 2013

See all articles by Margherita Bottero

Margherita Bottero

Bank of Italy

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Date Written: February 27, 2013


Credit registers collect, store and share information regarding borrowers’ past and current credit relations. Interestingly, such data is typically erased from the public records after a number of years, in accordance with privacy protection laws, which aim at providing individuals with a fresh start from past events. In order to secure credit-worthy but unlucky borrowers with a new beginning, however, these provisions end up removing all of the public information, including that possibly still relevant for screening purposes. This paper assesses such trade-off, by studying the impact of limited records on borrowers’ behavior and market outcomes in a stylized credit market for unsecured loans. In this setup, limited records endogenously give rise to beneficial reputation effects in the form of higher equilibrium effort, which alleviate, rather than worsen, the distortions caused by asymmetric information. Further, we demonstrate that when moral hazard is high, 1-period records can achieve higher welfare and lead to a lower default rate than records that show all, or nothing, of the past history.

Keywords: privacy, data retention, credit registers, limited records

JEL Classification: G24, G18, D82

Suggested Citation

Bottero, Margherita and Spagnolo, Giancarlo, Limited Credit Records and Market Outcomes (February 27, 2013). Bank of Italy Temi di Discussione (Working Paper) No. 903, Available at SSRN: or

Margherita Bottero (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501

HOME PAGE: http://

Centre for Economic Policy Research (CEPR)

United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133

EIEF ( email )

Via Due Macelli, 73
Rome, 00187


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