Memory and Markets

59 Pages Posted: 30 Mar 2016 Last revised: 30 Nov 2021

See all articles by Sergey Kovbasyuk

Sergey Kovbasyuk

New Economic School, Moscow

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: November 15, 2021

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 in a dynamic market where sellers’ quality follows a Markov process and buyers leave feedback about sellers to an information intermediary. When the average quality of sellers is low, unlimited records lead to a market breakdown in the long run. We consider the general information design problem and characterize information policies that can sustain trade and that maximize welfare. These policies hide some information from the market in order to foster socially desirable experimentation. We show that these outcomes can be implemented by appropriately deleting observable past records. Crucially, positive and negative records play opposite roles with different intensity and must have different length: negative records must be sufficiently long, and positive records sufficiently short.

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 (November 15, 2021). Available at SSRN: https://ssrn.com/abstract=2756540 or http://dx.doi.org/10.2139/ssrn.2756540

Sergey Kovbasyuk (Contact Author)

New Economic School, Moscow ( email )

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Russia
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HOME PAGE: http://https://www.nes.ru/sergej-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)

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United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
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Rome, RM 00133
Italy

EIEF ( email )

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Italy

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

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