Measuring bias in consumer lending

Dobbie, Will, Liberman, Andres, Paravisini, Daniel and Pathania, Vikram (2021) Measuring bias in consumer lending. Review of Economic Studies, 88 (6). pp. 2799-2832. ISSN 0034-6527

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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.

Item Type: Article
Keywords: Discrimination, Consumer Credit
Schools and Departments: University of Sussex Business School > Economics
Subjects: H Social Sciences > HB Economic theory. Demography
H Social Sciences > HG Finance > HG0179 Personal finance
H Social Sciences > HG Finance > HG3691 Credit. Debt. Loans
Related URLs:
Depositing User: Vikram Pathania
Date Deposited: 21 Aug 2020 10:09
Last Modified: 14 Jan 2022 09:45

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