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Memory and Markets

Author

Listed:
  • Sergei Kovbasyuk

    (Einaudi Institute for Economics and Finance)

  • Giancarlo Spagnolo

    (SITE-Stockholm School of Economics, EIEF, Tor Vergata & CEPR)

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.

Suggested Citation

  • Sergei Kovbasyuk & Giancarlo Spagnolo, 2017. "Memory and Markets," CEIS Research Paper 415, Tor Vergata University, CEIS, revised 07 Dec 2017.
    • Handle: RePEc:rtv:ceisrp:415
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    References listed on IDEAS

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    Cited by:

    1. Dominik Gutt & Jürgen Neumann & Wael Jabr & Dennis Kundisch, 2020. "The Fate of the App: Economic Implications of Updating under Reputation Resetting," Working Papers Dissertations 76, Paderborn University, Faculty of Business Administration and Economics.
    2. Will Dobbie & Paul Goldsmith‐Pinkham & Neale Mahoney & Jae Song, 2020. "Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports," Journal of Finance, American Finance Association, vol. 75(5), pages 2377-2419, October.
    3. Petrikaite, Vaiva & Hämäläinen, Saara, 2018. "Mobility with private information and privacy suppression," CEPR Discussion Papers 12860, C.E.P.R. Discussion Papers.
    4. Andres Liberman & Christopher Neilson & Luis Opazo & Seth Zimmerman, 2018. "The Equilibrium Effects of Information Deletion: Evidence from Consumer Credit Markets," NBER Working Papers 25097, National Bureau of Economic Research, Inc.
    5. Daniel Monte & Roberto Pinheiro, 2017. "Costly Information Intermediation as a Natural Monopoly," Working Papers (Old Series) 1721, Federal Reserve Bank of Cleveland.
    6. Cahn, Christophe & Girotti, Mattia & Landier, Augustin, 2021. "Entrepreneurship and information on past failures: A natural experiment," Journal of Financial Economics, Elsevier, vol. 141(1), pages 102-121.
    7. Aleksei Smirnov & Egor Starkov, 2022. "Bad News Turned Good: Reversal under Censorship," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 506-560, May.

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    More about this item

    Keywords

    Limited records; rating systems; credit registers; privacy; data retention; online reputation mechanisms; market experimentation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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