Memory and Markets

48 Pages Posted: 7 Dec 2017  

Sergei Kovbasyuk

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: October 17, 2017

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 records, instead, can sustain trade in the long run. Positive and negative records play very different roles, and welfare is maximized for short positive records and long but bounded negative records.

Keywords: Limited records, rating systems, credit registers, privacy, data retention, online reputation mechanisms, market experimentation

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

Suggested Citation

Kovbasyuk, Sergei and Spagnolo, Giancarlo, Memory and Markets (October 17, 2017). CEIS Working Paper No. 415. Available at SSRN: https://ssrn.com/abstract=3083530 or http://dx.doi.org/10.2139/ssrn.3083530

Sergei Kovbasyuk

EIEF ( email )

via Sallustiana 62
Rome, Roma 00187
Italy
393484523151 (Phone)
3484523151 (Fax)

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

Giancarlo Spagnolo (Contact Author)

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)

77 Bastwick Street
London, EC1V 3PZ
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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