Memory and Markets

51 Pages Posted: 30 Mar 2016 Last revised: 15 Sep 2018

See all articles by Sergey Kovbasyuk

Sergey Kovbasyuk

Einaudi Institute for Economics and Finance (EIEF)

Giancarlo Spagnolo

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

Multiple version iconThere are 2 versions of this paper

Date Written: September 5, 2018

Abstract

In many environments, including credit and online markets, past records about participants are collected, published, and erased after some time. We study the effects of erasing past records on trade and welfare in a dynamic market where each seller's quality follows a Markov process and buyers leave feedback about sellers. When the average quality of sellers is low, unlimited records always lead to a market breakdown. Appropriately deleting past records, instead, fosters experimentation and can sustain trade in the long run. Positive and negative records play opposite roles with different intensity, and welfare is maximized for short positive records and long but bounded negative ones. Analogous results obtain within an information design approach, in which an information intermediary simply recommends to uninformed buyers whether to buy from each seller. Our findings have implications for the design of privacy regulations, credit bureaus, and feedback systems in online platforms.

Keywords: Limited records, rating systems, credit registers, privacy, data retention, online reputation, market experimentation, right to be forgotten.

JEL Classification: D82, D53, G20, G28, K35, L14, L15

Suggested Citation

Kovbasyuk, Sergey and Spagnolo, Giancarlo, Memory and Markets (September 5, 2018). Available at SSRN: https://ssrn.com/abstract=2756540 or http://dx.doi.org/10.2139/ssrn.2756540

Sergey Kovbasyuk (Contact Author)

Einaudi Institute for Economics and Finance (EIEF) ( email )

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Rome, Roma 00187
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HOME PAGE: http://www.eief.it/faculty-visitors/faculty-a-z/sergei-kovbasyuk/

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

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

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

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