Sharing default information as a borrower discipline device

Creditors often share information about their customers' credit records. Be sides helping them to spot bad risks, this acts as a disciplinary device. I f creditors are known to inform one another of defaults, borrowers must con sider that default on one lender would disrupt their credit rating with all the other lenders. This increases their incentive to perform. However, sha ring more detailed information can reduce this disciplinary effect: borrowe rs' incentives to perform may be greater when lenders only disclose past de faults than when they share all their information. In some instances, by 'f ine-tuning' the type and accuracy of the information shared, lenders can ra ise borrowers' incentives to their first-best level. (C) 2000 Elsevier Scie nce B.V. All rights reserved. JEL classification: D82; G21.