Role and Effects of Credit Information Sharing

Tullio Jappelli () and Marco Pagano

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Information sharing about borrowers’ characteristics and their indebtedness can have important effects on credit markets activity. First, it improves the banks’ knowledge of applicants’ characteristics and permits a more accurate prediction of their repayment probabilities. Second, it reduces the informational rents that banks could otherwise extract from their customers. Third, it can operate as a borrower discipline device. Finally, it eliminates borrowers’ incentive to become over-indebted by drawing credit simultaneously from many banks without any of them realizing. This chapter provides a brief account of models that capture these four effects of information sharing on credit market performance, as well as of the growing body of empirical studies that have attempted to investigate the various dimensions and effects of credit reporting activity. Understanding the effects of information sharing also helps to shed light on some key issues in the design of a credit information system, such as the relationship between public and private mechanisms, the dosage between black and white information sharing, and the “memory” of the system. Merging the insights from theoretical models with the lessons of experience, one can avoid serious pitfalls in the design of credit information systems.

Keywords: information sharing; credit markets (search for similar items in EconPapers)
JEL-codes: D82 G21 G28 (search for similar items in EconPapers)
Date: 2005-04-01
New Economics Papers: this item is included in nep-cfn and nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Published in "The Economics of Consumer Credit: European Experience and Lessons from the U.S", edited by G. Bertola, R. Disney, and C. Grant, Cambridge: The MIT Press, 2006.

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