Measuring Bias in Consumer Lending

• Will Dobbie ^[2] ; Andres Liberman ^[3] ; Daniel Paravisini ^[4] ; Vikram Pathania ^[1]
  1. [1] University of Sussex

     University of Sussex

     Reino Unido

     
  2. [2] Harvard Kennedy School and NBER
  3. [3] Betterfly
  4. [4] London School of Economics and CEPR

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• Localización: Review of economic studies, ISSN 0034-6527, Vol. 88, Nº 6, 2021, págs. 2799-2832
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • This article tests for bias in consumer lending using administrative data from a high-cost lender in the U.K. We motivate our analysis using a new principal-agent model of bias where loan examiners are incentivized to 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, finding 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. In this case, market incentives based on characteristics that vary across groups lead to inefficient group-based bias.