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Measuring bias in consumer lending

Dobbie, Will, Liberman, Andres, Paravisini, Daniel and Pathania, Vikram S. (2020) Measuring bias in consumer lending. Review of Economic Studies. ISSN 0034-6527 (In Press)

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Abstract

This paper tests for bias in consumer lending using administrative data from a high-cost lender in the United Kingdom. We motivate our analysis using a new principal-agent model of bias where loan examiners maximize a short-term outcome, not long-term profits, leading to bias against illiquid applicants at the margin of loan decisions. We identify the profitability of marginal applicants using the quasi-random assignment of loan examiners. Consistent with our model, we find significant bias against immigrant and older applicants when using the firm’s preferred measure of long-run profits, but not when using the short-run measure used to evaluate examiner performance.

Item Type: Article
Official URL: https://academic.oup.com/restud
Additional Information: © 2020 The Review of Economic Studies
Divisions: Finance
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
H Social Sciences > HT Communities. Classes. Races
JEL classification: J - Labor and Demographic Economics > J1 - Demographic Economics > J15 - Economics of Minorities and Races; Non-labor Discrimination
J - Labor and Demographic Economics > J1 - Demographic Economics > J16 - Economics of Gender; Non-labor Discrimination
Date Deposited: 04 Jun 2020 16:24
Last Modified: 06 Jul 2020 23:30
URI: http://eprints.lse.ac.uk/id/eprint/104984

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