Sharing Default Information as a Borrower Discipline Device

A.J. Padilla and Marco Pagano

Working Papers from Centro de Estudios Monetarios Y Financieros-

Abstract: Creditors often share information about their customers' credit records. Besides helping them to spot bad risks, this acts as a disciplinary device. If creditors are known to inform one another of defaults, borrowers must consider that default on one lender would disrupt their credit rating with all the other lenders. This increases their incentive to perform. However, sharing more detailed information can reduce this disciplinary effect: borrowers' incentives to perform may be greater when lenders only disclose past defaults than when they share all their information. In some instances, by ``fine-tuning'' the type and accuracy of the information shared, lenders can raise borrowers' incentives to their first-best level.

Keywords: CREDIT; INFORMATION; INCENTIVES; BANKS (search for similar items in EconPapers)
JEL-codes: D82 G21 (search for similar items in EconPapers)
Pages: 33 pages
Date: 1999
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Sharing default information as a borrower discipline device (2000)
Working Paper: Sharing Default Information as a Borrower Discipline Device (1999)
Working Paper: Sharing Default Information as a Borrower Discipline Device (1999)
Working Paper: Sharing Default Information as a Borrower Discipline Device (1996)
Working Paper: Sharing Default Information as a Borrower Discipline Device (1996)
Working Paper: Sharing Default Information as a Borrower Discipline Device (1994)
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