Memory and Markets

Kovbasyuk SergeiSpagnolo Giancarlo
CEIS Research Paper
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.

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Number: 415
Keywords: Limited records, rating systems, credit registers, privacy, data retention, online reputation mechanisms, market experimentation
JEL codes: D82,D53,G20,G28,K35,L14,L15
Volume: 15
Issue: 08
Date: Thursday, December 7, 2017
Revision Date: Thursday, December 7, 2017