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Measuring bias in consumer lending
Version 2 2023-06-07, 08:56
Version 1 2023-06-07, 07:45
journal contribution
posted on 2023-06-07, 08:56 authored by Will Dobbie, Andres Liberman, Daniel Paravisini, Vikram PathaniaThis 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.
History
Publication status
- Published
File Version
- Published version
Journal
Review of Economic StudiesISSN
0034-6527Publisher
Oxford University PressExternal DOI
Issue
6Volume
88Page range
2799-2832Department affiliated with
- Economics Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2020-08-21First Open Access (FOA) Date
2022-01-13First Compliant Deposit (FCD) Date
2020-08-21Usage metrics
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